Christmas Business Bonuses
They say the road to hell is paved with good intentions so employers should always consider these few points before dishing out their Christmas bonuses.
1. Even if it is explicitly stated in the contract of employment that any award of a Christmas bonus (or indeed any other bonus) is entirely discretionary, employers need to be aware that, in exercising their discretion, they must not do so in a way which is likely to breach the duty of trust and confidence owed to employees. Therefore, employers must not act capriciously or vexatiously when deciding to whom a bonus will be given and when determining the amount. The safest thing is to award everyone the same amount, or at least everyone at the same level of seniority the same amount. If there is to be an element which is performance related, then employers should ensure they are able to back up their decision with objective evidence of performance.
2. If a bonus is awarded every year to all staff irrespective of performance (whether individual or company) then it could be argued that the bonus has become a contractual entitlement by virtue of custom and practice even if the contract of employment states that it is entirely discretionary. In Noble Enterprises v Lieberum UKEAT 67/98, Noble had operated an incentive bonus scheme for five consecutive years, although the terms of the scheme were never recorded in writing. When Mr Lieberum resigned at the beginning of the next bonus year, Noble refused to pay him the bonus to which he claimed he was entitled for the previous year. Noble argued that since its scheme was discretionary, it could refuse to award the employee any bonus. The EAT disagreed. The employer had discretion over whether to operate the scheme from year to year, but once the bonus year began, this discretion was limited. Since Noble had not informed Mr Lieberum that it intended to discontinue the scheme before the start of the year, there was a reasonable expectation that he would receive a bonus in return for his efforts.
3. Don’t forget those on maternity/paternity/shared parental leave! Discretionary bonuses are not salary payments but are benefits of employment. As such the entitlement to receive them does not cease during any period of maternity/paternity or shared parental leave. A failure to pay will not only be a breach of contract, it will also amount to unlawful discrimination.
4. If an employer doesn’t want to pay a Christmas bonus to employees who are working out their notice, then they need to be very clear in the contract of employment that there is no entitlement to any bonus (including discretionary bonuses) once notice to terminate employment has been given or received. Similarly, if employers don’t want to include bonuses as part of any payment in lieu of notice, then they need to ensure that the PILON clause in the employment contract is explicit in that regard.