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How do you go about challenging a bonus? Employment Lawyers explain

By Practice Group Leader, Employment

“I believe I was promised a bigger bonus than I was actually paid. How do I go about claiming what I believe I was promised?”

What can you do if you believe your bonus was not as you had been led to believe? It is not always something easy to prove but will depend on the nature of the bonus, how you were promised the bonus and what was said. You may have a claim for breach of contract or your lack of bonus may be linked to a discrimination or whistleblowing claim.

We have set out below some advice our top ten tips on how to make your challenge your bonus:

1. If your bonus is contractual check whether it been paid in accordance with the formula. Has the bonus been paid in accordance with the formula? Get the wording checked if you are not sure – it is not always clear and may be open to interpretation.

2. If your bonus is described as discretionary it may still give rise to contractual rights – this will depend on the relevant wording in the contract or handbook. In order to be contractual the bonus must be sufficiently certain and there must be an intention to create legal relations. A good example of this was seen in the recent case of Attrill and others v Dresdner Kleinwort Ltd and Commerzbank AG where the High Court upheld bonus claims where bankers had been promised a bonus pool of €400million verbally during a meeting in a town hall, showing that it is no always the case that a commitment must be made in writing. The bankers were successful in bringing claims for breach of contract.

3. Is there a right to a bonus if there has been a custom and practice of paying bonuses? If bonuses have been paid on a regular basis, your employer’s discretion to withdraw the payment of bonuses may be limited, even if the scheme itself is discretionary.

4. Have performance conditions been met? If you have achieved your performance conditions your employer may be obliged to award the bonus. Your employer may have discretion in deciding whether your targets have been met but must normally act in good faith.

5. Has discretion been exercised in good faith? If your bonus is discretionary, employers have an obligation not to exercise that discretion “irrationally or perversely.” An employer should be asked to give reasons for the exercise of discretion to pay or withhold a bonus. An internal grievance lodged with your employer, under the grievance procedures, can serve to usefully air your issue and can sometimes achieve success, depending on the facts.

6. Is there a clawback provision that can be challenged? Clawbacks can sometimes be challenged on the basis they are penalty clauses (broadly speaking they operate as deterrents, rather than genuine pre-estimates of loss) and therefore unenforceable. Clawbacks can also be challenged if a clawback follows as a result of the employee breaching a post-termination restriction, such as not competing with the employer. If the restriction is found to be unenforceable, it is likely that the clawback that follows will also be unenforceable. If your employer is seeking to claw back your bonus, seek advice on the nature of the clawback as this is a complex legal area.

7. Have you been discriminated against? If your employer has paid higher bonuses to other employees by reason of a protected characteristic such as age, race, sex or pregnancy/maternity, you may have a discrimination claim which can result in compensation for the difference in payment. If the difference is due to gender and the bonus is contractual, you may also have a claim for equal pay which can allow you to claim damages for the past 6 years. There is no cap on the amount you could receive under equal pay or discrimination legislation.

8. Have you been dismissed just before your bonus was due to be paid? If you have been dismissed without notice and there is no right for the employer to pay you in lieu of notice, you could claim your bonus payment as part of a wrongful dismissal claim for your notice entitlement, provided there is no clause stating that the bonus will only be payable if you are in employment.

If there is a clause entitling your employer to pay you in lieu of notice clause, which is not limited to basic salary only, again you may have a claim for your bonus payment. The wording needs to be carefully checked.

If you have a claim for unfair or constructive dismissal your bonus entitlement may form part of your compensation, although the compensatory award will be capped at the lower of £74,200 or one years’ salary.

9. Are you a fixed term or part-time worker? If you fall under either category you have a right not to be treated less favourably unless that treatment can be objectively justified. It is a high threshold for employers to show justification and claims for proper bonus entitlements are often successful in such cases.

10. Negotiate at the outset – as with all disputes, the best advice is to negotiate the terms of the contract before signing. Take legal advice on the provisions to ensure that the bonus clause is as tightly worded as possible.

If you have any concerns regarding the payment of your bonus please contact us on 0800 916 9060