An employer was liable for unlawful deductions from wages when an employee established entitlement...
Crystallisation of discretionary bonus
An employer was liable for unlawful deductions from wages when an employee established entitlement to a bonus before the employer attempted to apply a cap to the amount that could be paid.
Background
C worked in sales for Wipro. In March 2020, staff were informed of a ‘kitty bonus’ scheme offering up to 1% of new invoicing, subject to approval by the relevant sector lead.
After C’s team secured a contract with John Lewis Partnership, their line manager sought approval for payment of the bonus, and the relevant sector lead approved it on 1 July 2020. Several weeks later, however, the employer began suggesting that additional approval was required from more senior management. At the same time, it introduced a cap of $150,000 on the payment. This was communicated to C and others in December 2020.
Mr C was paid $150,000 and subsequently brought an unlawful deduction from wages claim, arguing that he was entitled to the full 1% on first year revenues which totalled over $500,000. A tribunal rejected his claim, finding that no legal entitlement to the bonus arose until the December 2020 announcement.
EAT decision
The appeal was allowed.
What the tribunal should have focused on was whether C had already become entitled to the bonus under the terms originally communicated to him in March 2020. The scheme required only two things: a qualifying deal and approval from the sector lead. Once those conditions had been satisfied, C acquired an entitlement to receive 1% of the relevant revenues, even though the precise amount could not yet be calculated.
It was not open to the employer to then ‘move the goalposts’ by attaching further conditions to his entitlement after the original terms had been outlined to him and after those terms had been satisfied – C’s entitlement had already crystallised before those restrictions were introduced.
The EAT substituted a finding that C was entitled to 1% of the first-year invoiced revenue, less the $150,000 already paid.
Comment
Too often employers become fixated with the fact that bonus schemes are discretionary, and they believe that they can just change the goalposts when they want. This case is a useful reminder that once the goalposts have been established and a goal scored by the employee which satisfies all of the requirements, the employer cannot then look to VAR to try and wriggle out of paying. What started as a discretionary scheme has been turned into a contractual entitlement by that stage, as all of the conditions have been satisfied and failure to pay is an unlawful deduction from wages.
A reminder that unlike breach of contract claims in the tribunal (capped at £25,000) there is no cap on an unlawful deduction from wages claim. Also, if an employee is successful in this claim, it prevents the employer from bringing a claim in other jurisdictions for the same sum.
This most frequently occurs when an employer thinks an employee owes them money for fraud or damage to company property and deducts it from the employee’s wages without having authority to do so (this authority must be a very specific clause in the contract and the contract must be signed by the employee) – the employer will be ordered to repay the money to the employee as an unlawful deduction and then cannot bring a claim in the county court even if it is a genuine debt to them. This was put in place to encourage employers not to deduct sums from an employee when they have no authority to do so.