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'Discretionary' Bonus Had to Be Paid

Many employers offer bonuses and commission on a discretionary basis. But in some cases the discretionary element hardens and can become a contractual entitlement. This is what happened in a recent case.

Mr Small was a warehouseman who worked for Boots the Chemist. He claimed that his employer had made an unlawful deduction from his wages when he was not paid performance related bonuses to which he claimed he was entitled.

Boots’ Staff Handbook said “After a qualifying period of service, there are additional discretionary benefits, such as bonuses...... However, they are not intended to be contractual”. The Employment Appeal Tribunal concluded that the bonuses had become an entitlement for three reasons.

(i) The word “discretionary” could be referring to the provision of an overarching bonus scheme, to a decision each year to operate a bonus scheme, to the method of calculation of bonus, to the threshold which triggers a bonus, or to whether a percentage of salary (and if so, what percentage) will be paid.

(ii) The bonus had been regularly paid over a long period of time and the vital question was whether any contractual entitlement had arisen.

(iii) Case law shows that in exercising its discretion as to the provision of a particular bonus, Boots had to act rationally and in good faith, something the original tribunal failed to consider.

If your bonus scheme is giving you the blues.

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