Bonus and Commission Payments

Bonus and Commission Payments

Every year the employment solicitors at Stone Joseph see a number of claims relating to bonuses or commission, either linked to an unfair dismissal, discrimination, or as a contractual claim.   It may be as simple as assessing whether a bonus payment or commission payment will be paid on a mutually agreed termination.  These issues arise from simple misunderstandings or, more likely, poorly drafted bonus or commission schemes. 

Guaranteed bonuses

Guaranteed bonus payments are governed by the terms of the employment contract or other document in which the guarantee is set out.  For employees leaving employment, payment of a guaranteed bonus can be dependent on the reason for the employment terminating (an employment solicitor will often refer to this as the good leaver/bad leaver provision or refer to leaving with ‘cause').  Employer's often have trust documents that are drafted separately governing the payment of bonuses, and particularly if there is an employee share scheme.  The contractual documentation is often complex and it is recommended that you seek the advice of employment solicitors to assist you with its analysis.

Discretionary bonuses

Discretionary bonus payments are more common, allowing the employer to decide how much and when the employee is allowed a bonus payment.  Many commision schemes may also operate on a discretionary basis, although the terms governing the commission pamynets may be more definite.  Although the bonus or commission payments are discretionary, the Courts are able to interpret whether or not the employer has acted fairly and reasonably in exercising it's discretion.  If the employer has discriminated or acted in bad faith in not providing or reducing the amount of a bonus payment, the Courts can potentially intervene in the employee's favour.   In essence, the Courts now imply a term in every employment contract, requiring an employer to exercise its discretion in good faith and not in a perverse or irrational manner.  This applies to whether to award a bonus payment and at what level that bonus payment should be.

The Courts will look at various factors to assess whether the bonus is correct including the performance criteria in the contract or those previously applied, the team and the individual's performance, the industry custom and practice and how other members have been treated. Throughout, the employer has to be consistent and justified in awarding bonuses and to favour one employee above another may give rise to a claim.

·    Employers should be transparent as to how bonus payments are awarded

·    Employers should follow the terms of their bonus schemes

·    The terms of such bonus schemes should be clearly drafted to avoid any claims based on ambiguous terms

·    Employers should act reasonably

The law is complex and continuing to develop in this area, so we strongly advise you to contact either Andre Pungerl or Ruth Neil (020 7854 9098) experienced employment solicitors at Stone Joseph.

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