Reviewing contracts

Employment law

A guide to challenging a bonus

When is it appropriate to challenge a bonus and what are your legal rights? In our specialist blog, we explore some of the most common scenarios for bonus disputes.

13 March 2018

Can I challenge my bonus?

You should give careful thought to challenging your bonus if it is significantly less than in previous years, it does not reflect your performance, or is different to the sum previously agreed with your employer.

But when is it appropriate to challenge a bonus and what are your legal rights? Below, we explore some of the most common scenarios.

You were not paid the bonus set out in your contract

In some cases, you will be contractually entitled to a bonus. These agreements can be in the form of a golden handshake, where you have been promised a certain sum when you leave job, or where you have achieve clearly identified targets.

Your employer could also be obliged to pay you a bonus if they are awarded as part of the “custom and practice” of a business – for example, where bonuses have regularly been paid over a period of years where certain standards have been reached.

If that bonus is not paid or is too low, a claim for breach of contract could be pursued at either the county court (for claims up to £50,000) or High Court (for claims over £50,000).

Such a claim would need to be submitted within six years of the breach.

Your bonus constitutes a part of your wages

A bonus can sometimes be considered part of your wages where, for example, your employer has agreed to pay you a quantifiable sum of money if you achieve a certain target – maybe a proportion of profit you attain or if you hit a sales figure.

If your bonus then falls short of what was agreed, you can take a claim to an Employment Tribunal under s.13 of the Employment Rights Act 1996 for unlawful deductions from wages.

These claims can be pursued while you still work for an employer or within three months of the termination of your employment.

You were not paid your bonus because of discrimination

You could challenge a bonus if you have been denied one or you’ve been paid less than you were entitled to because of discrimination relating to your age, race, sex, sexual orientation, religion, disability or marital or transgender status.

If this were the case, it would be a breach of the Equality Act 2010.

Such claims may arise for example where a woman has not received her correct bonus entitlement following a period of maternity leave, where individuals with disabilities are not awarded bonuses due to their levels of absence, or where a macho culture in a workplace leads to men receiving higher awards, without objective foundation.

Claims relating to discrimination are heard in the Employment Tribunal and should be brought within three months of the discriminatory act (or six months for equal pay claims).

Does it matter if my bonus is contractual, discretionary or deferred?

Even if your bonus is discretionary or deferred, you may still be able to pursue one of the claims above.

Where the bonus scheme is discretionary, it is possible to challenge an award on the grounds that the discretion has been exercised unfairly or unreasonably.

This means that discretion cannot be exercised on irrational or perverse grounds and an employer cannot consider irrelevant factors, nor should it fail to consider relevant factors.

For example, where you have reached all targets but have been awarded a low bonus supposedly on the grounds of individual performance, this may be considered to be an unfair exercise of discretion which could lead to a claim.

For deferred bonus schemes (often referred to as an LTIPS award), the bonus award will usually vest only once a certain period of time or other condition has been met. The award of a deferred bonus would be subject to the same requirements.

For example, cancelling all share options following termination may be considered irrational, where the award had been granted to reward past performance.

How can I challenge my bonus?

1. Talk to your line manager: Often the quickest and easiest a way to challenge a bonus is to have a discussion with your line manager.

They may be able to provide you with an explanation regarding the amount offered, or be able to consider any points you may raise to try to resolve matters.

2. Raise a formal grievance: If you are not happy with your line manager’s response, you could consider raising a formal grievance in accordance with your employer’s grievance policy.

This can be a good option if you intend to continue working for your employer and you want to try to resolve the matter internally. If a bonus is unfair, it is possible to reach a settlement at this time.

3. Take a claim to tribunal: If these internal processes are unsuccessful, you may then wish to consider seeking legal advice regarding a potential claim before the court or tribunal. And any claim to the employment tribunal must now first go through an early conciliation process with ACAS, to see if the complaint can be settled before the claim is submitted.

Am I entitled to a bonus if I recently left the company?

It is not uncommon for bonus policies to include clauses restricting eligibility where the individual is either under notice or has left at the time of payment. You should always consider your contract and any bonus policy carefully when deciding if and when to hand in your notice.

Equally, if your employer has issued you with notice, consider whether therefore would be any impact on your eligibility for a bonus.

For example, if you’ve been asked to work your notice (and may therefore be working at the time the bonus is paid) will that be more worthwhile than being offered a pay in lieu of notice.

"Good leavers” versus “bad leavers”- how will that affect my bonus?"

The reason for termination may also impact on your bonus. In particular with deferred bonus schemes, it is common that those considered “good leavers” such as those leaving by way of redundancy or retirement, will often receive their full entitlements.

Those considered “bad leavers” including for example those who have been dismissed for gross misconduct, will often forfeit their awarded but unpaid bonus amounts.

These are sometimes matters that can be negotiated as part of an exit strategy, so we would recommend seeking legal advice on your position before resigning from your role.

For more information, call us on freephone 0330 107 5087 or contact us online.

All the above information was correct at the time of publication.

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