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A Guide to Challenging Your Bonus

We all know this will not be a good year for bonuses. Predictions suggest bonus pools will be down 30 to 50 percent and that as many as 20 percent of front-office bankers may receive virtually no bonus at all.

But if you are not happy with your bonus, is there anything you can do about it?

Every bonus scheme and situation is different and needs careful analysis, but there are some key points which often come up.

Is your bonus contractual or discretionary and what difference does this make?

If your bonus is contractual, you can bring a straightforward breach of contract claim for the amount due.

If, on the other hand, your bonus is discretionary, your employer only has to give proper consideration to what your bonus should be and is not obliged to pay you any specific amount.

In this situation, a challenge cannot be a simple breach of contract claim. Instead, you have to claim that your employer did not consider your bonus properly. This means showing that no reasonable employer would have made the decision your employer made. Unfortunately, this is not easy to demonstrate: reasonable employers can legitimately make a wide range of different decisions when exercising the same discretion. You would also have to persuade a court what size bonus an employer behaving reasonably should have given you. Discretionary bonuses are therefore hard to challenge.

Confusingly, however, in some instances your contract may describe your bonus as being discretionary when it could, in fact, be contractual. For example:

  • If your bonus is calculated according to a formula, it is more likely to be contractual even if it is described as discretionary.
  • If your employer has told you how your bonus will be calculated, then it has exercised its discretion to award you a bonus on that basis and, if there is no further discretion for the employer to exercise, you will be contractually entitled to the bonus calculated on that basis.
  • If you have been given a guarantee, it could make your bonus contractual, even if only the size of the pool is guaranteed, not your individual share.

Discretionary bonuses

Even when your bonus is discretionary, there may be further grounds for a legal challenge. For example:

  • If your employer uses a formula to calculate bonuses but has not done so in your case, then even if your bonus is discretionary you can argue that your employer has not exercised its discretion properly. Your employer will then have to justify not applying the formula in your case.
  • If your employer has withdrawn the bonus scheme during the year, you may well have a claim even if the rules of the scheme say it can be withdrawn at any time: once you have worked on the basis that a bonus scheme will apply, usually your employer cannot withdraw it until the end of the bonus period. Your employer may only be entitled to withdraw or change a bonus scheme before the bonus year begins or, possibly, early in the bonus year.
  • Bonus schemes often contain a rule that you must be in employment and not have given or received notice on the date bonus is due for payment. This rule is probably valid and will stop you from being entitled to a bonus if it is written into the rules of the bonus scheme. However, if the rule is not written into the bonus scheme, your employer cannot claim that it applies just because it is common industry practice.
  • If you have been treated differently from your colleagues, you may be able to recover compensation indirectly by bringing a discrimination claim. There is no limit on the compensation which may be awarded for discrimination.

Deferred bonuses

What if your bonus is deferred or paid in shares? Check whether your employer is entitled to do this under the rules of the bonus scheme. If the FSA remuneration code applies, your employer will be subject to specific rules about deferral.

Are you entitled to unpaid deferred bonus after you have left? Again, you need to check the rules of your scheme. There may be “good leaver” and “bad leaver” rules under which deferred bonus can be lost either automatically when you leave or only in particular circumstances – such as if you solicit business from your employer’s clients on behalf of a competitor. 

Adrian Crawford is an employment law partner at Kingsley Napley LLP.

This article first appeared on our UK site.

AUTHORAdrian Crawford Insider Comment

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