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Employee bonus disputes



Fri 13 October 2023 Employee bonus disputes

Bonuses are widely used by employers in an effort to incentivise staff . Bonus and other reward schemes such as performance related pay often play a significant role in attracting senior individuals to certain organisations and help to cultivate a valued, loyal and motivated workforce.

One of the most common areas of dispute relates to whether a bonus is contractual or not. Employers usually want  to ensure that bonus entitlements are genuinely discretionary in an effort to afford them some protection in the event of changing company performance.

The starting point is the wording of the employment contract or director service contract but this not necessarily the full story. A court can take into account the way in which bonuses have been dealt with in the past ie if bonuses have been paid every year in practice even if the contract states that entitlement is wholly at the employer's discretion, in  deciding whether there is a contractual entitlement for the current year.

Bonus disputes

 Discretionary bonus entitlements are often challenged by employees on the basis that they are not truly discretionary. There is case law where the Courts have found that non-contractual/discretionary bonus schemes in reality create contractual rights through custom and practice.. As a result, employers need to be careful and consistent in their approach to bonuses, and this starts with ensuring that relevant documentation is clear and well considered.

Generally speaking, to mitigate against bonus claim disputes,  employers should :-

Our employment lawyers are very experienced in drafting clauses in contracts, preparing bonus scheme policies or dealing with disputes arising over bonuses. Please do get in contact.


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