Employment law regards a bonus, or commission, as a promise of benefits made by a manager or employer to an employee. It is in addition to normal pay and is in return for exceptional or extra work. The benefits can be financial, share options, loans, profit share, or a partnership arrangement.
The best employment lawyers recognise that bonuses can cause disputes between an employee and employer because it is common for bonuses to be given on the basis of the manager’s discretion. There can be disputes over who gets a bonus and how much is the bonus. A promised bonus can also change because of changed circumstances a business faces since the promise was made.
Although, employers have discretion, it is often the case that there is a criteria or, a formula, that the employee must satisfy before being considered for the bonus. Employment tribunals dealing with bonus disputes have judged that discretion has to be based on reasonable grounds and subject to good faith. Under employment law an employer would be expected to distribute a bonus if the employee meets the bonus criteria. An employer would have to justify the basis for refusing a bonus. It is not lawful for a refusal to be based on a personal dislike.
Employment tribunals expect such bonuses to be not only written into contracts but also be structured and usually based on a specific formula. The formula can be based on personal performance indicators and overall team or business performance. Employment tribunals expect this to mean less room for discretion and if the employer does not adhere to bonus payments then this could be a breach of contract. But less does not mean none. There may be some discretion built into a contractual bonus scheme but employment tribunals will still require the employer to abide by the spirit of the contract of employment.
If a bonus scheme has become normal through historical practice, it then may become difficult to remove the scheme.
Payment and the end of employment
The best employment lawyers would advise that qualifying for any bonuses would be affected by whether there has been a resignation or sacking. If an employee has been dismissed for gross misconduct, this usually means they have breached their contract and cannot receive any benefits of the employment.
If the employment contract states that the employee must be employed to qualify for bonus payments, then working under notice may not make the employee eligible. So, if the employee resigned and handed in their notice before the bonus payment date, they may not qualify for the bonus. Employment lawyer advise great caution because working the notice, being on garden leave and payment in lieu are all issues that can affect whether an employee can receive a bonus.