BONUS PAYMENTS

A guide to bonus payments from the employment law experts

Marjon Law, specialist employment lawyers is owner-led by Marc Jones, who is ranked and recommended in legal publications as a leading employment law solicitor, with over 20 years of experience practising solely in employment law.

If you would like urgent advice on bonus payments, please contact us as soon as possible.

How to claim for non-payment of a bonus?

Bonuses can apply to employees, workers, consultants, contractors, partners, office holders, shareholders and members of a limited liability partnership.

For the purposes of this webpage, the information provided is in the context of employee and employer, but the principles remain the same.

If an employer has failed to pay a bonus that an employee believes they are entitled to under the terms of their employment contract, Marjon Law can advise on the legal options.

In the first instance, it is normally a good idea to discuss non-payment of a bonus with the employer to find out the reasons for non-payment or underpayment of the bonus. If a resolution cannot be agreed, an employee should ask the employer for a written explanation of why the expected bonus has not been paid. This can then form the basis of any further action an employee decides to take to resolve the matter.

In many cases, it may be possible to make a claim to an employment tribunal for unlawful deduction from wages and if the employee is no longer employed for breach of contract. It is also possible to bring a claim in the civil courts for breach of contract while still employed. Whether an employee has grounds for such a claim will depend on many factors, including the terms of their employee's contract of employment and the employer’s reasons for non-payment of the bonus.

If an employee has left their job because of the employer failed to pay a bonus to which the employee believes they were entitled, the employee may also have grounds for a claim of constructive dismissal. We always recommend speaking to an experienced employment lawyer (preferably from Marjon Law) before resigning to ensure there is not an unintentionally undermining of the right to pursue such a claim.

However, such matters can in some instances be resolved through negotiation, workplace mediation or Acas early conciliation, allowing an employee to receive the bonus s/he is entitled to without the need for formal proceedings in the employment tribunal or civil courts. If a solution is reached in this way, it will be quicker, and the legal costs will be lower. It also lets the employee keep the matter private and avoids the stress and uncertainty of tribunal proceedings where the outcome will be out of their hands.

Types of bonus payments we can advise on

Contractual bonuses

This is where the right to a bonus is written into the terms of the employment contract, usually with a specific formula for calculating the value of the bonus, based on set criteria. Contractual bonuses are often linked to the employee's performance (eg sales targets achieved) or the performance of the company.

Contractual bonuses create the most straightforward situation for an employee. They offer a transparent way of determining a bonus entitlement and place a contractual obligation on an employer to pay the bonus according to the terms agreed.

If an employer does not pay a bonus in line with the terms of the contract, an employee is likely to have a clear case to bring a claim in the employment tribunal or civil courts. If as a result of not being paid, an employee can no longer remain employed and decides to resign, the employee may have a claim for constructive dismissal against the employer.

Discretionary bonuses

It is common practice for employers to pay bonuses on a discretionary basis. This means that, although there may be a formula for how bonuses are calculated based on criteria, such as individual sales performance, it is up to the employer to decide whether to pay a bonus and what level to set the bonus at.

However, where the right to a bonus is at the discretion of an employer, the employer has a duty to exercise that discretion in good faith, with the decision based on reasonable grounds.

If an employee believes the employer has not acted in good faith and/or lacks reasonable grounds for refusing to pay a discretionary bonus to which they believe they are entitled, the employee may have a claim.

Long-term incentive plans

Long-term incentive plans can be used by employers to give employees stocks or shares in a business when certain conditions have been met eg completing a set period of employment or achieving agreed performance goals. This is usually dealt with through restricted stock units (RSUs).

RSUs are a way an employer can grant company shares to employees. The grant is ‘restricted’ because it is subject to a vesting schedule, which can be based on length of employment or on performance goals, and because it is governed by other limits on transfers or sales that the company can impose.

Unlike stock options, RSUs always have some value to an employee, even when the stock price drops below the price on the grant date.

On the termination of employment, RSUs stop vesting. The only exception occurs in certain situations when vesting may be allowed to continue or may even be accelerated (eg death, disability, retirement and depending on your plan and grant agreement).

Failure by an employer to issue stocks or shares as agreed under the terms of a long-term incentive plan can be grounds for a claim. Therefore, it is important to take legal advice as soon as possible if an employee believes they have been denied their entitlement under such a scheme.

Maternity equality clauses

Where an employee has a contractual entitlement to a bonus, they have the right to be paid a bonus for any year in which they have taken statutory maternity leave. However, an employer will only be required to pay a bonus for the part of the relevant year where the employee was:

at work (before and/or after your statutory maternity leave)
on the standard 2 weeks of compulsory maternity leave

Where a bonus scheme is discretionary, the employer must act in good faith with regard to deciding the entitlement to any bonus for a bonus period where the employee was on maternity leave.

Common questions about bonus disputes

Can an employer change the bonus scheme?

If the bonus scheme forms part of an employee's employment contract, the employer will need permission before making changes to the scheme. Should an employer attempt to change the terms of the scheme without an employee's agreement, this could be grounds for a claim of constructive dismissal if the employee believes they can no longer remain employed as a result.

Can an employer withhold a bonus if they dismiss an employee?

This will depend on the circumstances. If the bonus scheme is contractual and an employee is dismissed for gross misconduct, an employer may be under no obligation to pay the employee any outstanding bonus. This is because the employee will be seen to be in breach of their contract of employment. This may not be the case if an employee is dismissed with notice eg due to redundancy.

However, if an employee believes their dismissal was unfair, any bonus payments they have been denied could form part of a potential claim for loss of earnings as part of an unfair dismissal e mployment tribunal claim. Marjon Law would be happy to advise on this complex matter, to help ensure the claim is handled effectively.

Can an employer withhold a bonus if an employee resigns?

This will depend on the terms of the employment contract. If the contract states that the employee must be employed on the agreed bonus payment date, resigning before this date could mean that the employee loses their entitlement to the bonus for the relevant period. An employee should therefore give careful consideration before choosing when to end their employment and always take legal advice on the terms of their employment contract first, preferably from Marjon Law.

The material contained in this web page is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.