As we approach bonus time and budget setting, many employees working in the financial sector will be holding their breath as headcounts are slashed before bonus payments are paid.

For wealth managers, their own wealth is understandably a prime concern. The early months of the year are often a time when bonus awards and staffing decisions are made that set the tone – for good or for ill – for the rest of the year. And the legalities of the situation can be complex. So it makes sense that law firm Irwin Mitchell is commenting on this issue in these pages. The author of the article is Melanie Stancliffe, employment partner at Irwin Mitchell. This publication is pleased to share these insights; it does not necessarily endorse all views of guest contributors and invites readers to respond. They can email the editor at tom.burroughes@wealthbriefing.com

As we approach bonus time and budget setting, many employees working in the financial sector will be holding their breath as headcounts are slashed before bonus payments are paid. Whether it’s a redundancy or an offer of a Settlement Agreement, this can leave those who have worked the full year significantly out of pocket. How can you protect yourself?

Year on year, Q1 sees a notoriously high turnover of staff in the City. Employees banking on receiving their bonuses, get a rude awakening when their told that their employer will not be paying the bonus they are expecting, a bonus which forms a substantial part of their remuneration package.  

Are employers allowed to deprive employees of their bonuses when they‘ve worked the full year?  Not necessarily. It depends on what has been agreed but there is plenty you can do to maximise your chance of a bonus payment.  

1.    Did you negotiate your bonus?
Many employees have learnt the hard way that negotiating their bonuses is the best way to ensure that the package used to lure them actually gets paid. Whether it’s in the contract, a promotion letter, a retention letters or the deferrals from a past bonus awards, it is worthwhile checking exactly what your entitlement was agreed to be.

•    A discretionary bonus
The most typical bonus clauses give the employee the right to be “considered” or “eligible” for a bonus, the sum of which is decided at the employer’s discretion. There may be no indication how the discretion is to be exercised. Alternatively, it may go on to refer to a payment if the employee, their team or the organisation as a whole achieves certain conditions, KPIs or profit.  

An employer must therefore “consider” the employee for a bonus, even if they are leaving. Most bonuses are calculated on the full year’s activities – if you have been employed for that full year and meet the conditions set, then you should receive a bonus payment. An employer has some discretion about the right to bonus or amount to be awarded, however the courts will intervene where the employer has acted arbitrarily or irrationally (1). Take the employee who has worked to build up a profitable service line which the employer decides to discontinue – the employee has done their part and the decision has been imposed.  

Whilst there is a high hurdle for employees to challenge the withholding of discretionary bonus payments, employees are leaving cash on the table by not taking the point.

•    Performance - based
To those employees who negotiated a right to be paid (not considered) for a bonus based on their performance, full marks to them. These reduce the amount of wiggle room that the employer has to decide whether an award should be made and the amount of bonus payable.

The ideal scenario for a departing employee is that the amount of their bonus entitlement is clear and linked to achieving objective, SMART, criteria. You may not have all of these requirements in a single document, but even verbal discussions can prove valuable. In one case, the promises made by the employer to a group of employees in a “town hall” meeting, were sufficient to afford them a right to bonus (2).   Those employees were assured that if they remained in employment for a specified period, then a bonus pot would be divided between them.  If you have satisfied the bonus condition(s) or performance requirements, whether they are written or not, you have the right to be paid your bonus.  

•    No mention of bonus
Even where these are silent about bonus, your employer cannot treat that as the final say.  Bonuses are often deliberately kept outside of the employment documentation but they still form part of your payment package. The way that bonuses have been calculated and awarded in the past can be demonstrated from previous award letters and payments to your bank account. The promises made to you may be in emails. A commitment to pay a bonus gives rise to an equally sound right to be paid a bonus (even if proving the exact commitment can be a challenge).

2.    Do I have the right to bonus even if I leave?
Your employer has no automatic right to withhold a bonus payment because you are leaving. The law is clear, you have the right not to be treated arbitrarily because your employer still owes a duty of trust to you. Even if you are in your notice period, you have the right to of payment to be considered for or paid the bonus to which you are entitled (3).  

Notwithstanding that starting point, there is a fly in the ointment. Some employers retain the right to receive the bonus if the employee has resigned or given notice before the date the bonus is paid and have the right to terminate your employment without allowing you the full notice period (4). This is not the end of the matter either:-  
An employer who has “reserved the right” to not pay bonus, has to show that exercising that right is no capricious.

The employer needs an express term in the bonus documentation to withhold any bonus payment.  There is no implied right for an employer to withhold the bonus.
If the employee’s redundancy or dismissal is unfair, then there bonus is part of their losses. They can claim or negotiate with their employer for their bonus to be paid.
In more amicable separations, an employer will often pay the bonus or part of it, as the compensation offered under a Settlement Agreement. They want to incentivise the employee to sign such a waiver of their rights to bring a claim and a bonus pot which has already been set aside can be a neat way to do so without touching other budgets.  

Many employees are also identifying injustices in the bonus awards made (or withheld from some). The issue of unequal pay, both the fixed and variable, are ubiquitous at present. Whether it’s the press coverage of the BBC, Phase Eight or Tommy Hilfiger, the dye has been cast and it’s raising awareness in and pervading all other sectors.   No line manager wants to be held up as the one whose bonus awards are more favourable to a person in a protected group than a departing employee in another.  

More importantly, employers know that bonuses can skew the pay figures which they have to publicly report on an annual basis (5). The naming and shaming has begun with high profile names vilified in the press. When retaining and attracting talent is already a Brexit-fuelled challenge, nobody wants to be next.

3.    What are your tools for challenging your bonus?
•    Internally
The first step if you are still in employment when the decision is announced, is to use any right of appeal you are given.

You can also raise an informal or formal complaint. The organisation’s Grievance Policy will identify who you should contact and the information you need to provide (the more factual and objective you can be the more this is to result in a favourable outcome).  The employer can decline to hear the grievance if you have left the organisation however it can open the door to negotiations.

Internal diversity groups, employee representatives, Heads of Engagement or Diversity can all prove effective champions for a re-evaluation of the bonus which you should have been paid.

•    Externally
There are various external bodies which can provide advice or enquire in to the circumstances – ACAS, the FCA, the PRA, the Equal Opportunities Commission, to name but a few.  

Should other avenues fail, you may also wish to consider a claim against the organisation. If there is clearly unpaid debt then a brief statutory demand can be issued.  If there is dispute about the sum owed, then you are looking at longer proceedings. You can pursue a claim even if you remain employed by the organisation you are claiming against. Whilst it is not a comfortable experience, for some of you it is the last resort open to you.  

If your employer is considering a head count reduction ahead of your bonus payment, now is the time to act. Arm yourself with the terms agreed from your bonus and get ready to fight for the payment package you were promised. The market is changing and the external pressures on employers to value their staff or risk “naming and shaming” are ever present. It is a matter of choice and realising, “If you don’t ask, you don’t get”. If nothing else, we’ll be wiser the next time around.

Notes:

1, Commerzbank AG v James Keen [2006]

2, Attrill v Dresdner Kleinwort Ltd [2013] EWCA Civ 394 CA

3 Rutherford v Seymour Pierce Ltd [2010]

4  If there is a clause allowing Payment In Lieu of Notice in your contract and they pay that payment

5  For Gender Pay Gap Reporting.  BME Pay Gap Reporting is expected to follow