Workplace rights - Discretionary bonuses

Official statistics have revealed that bonus payments in the financial services sector are hitting record levels. Given the huge sums at stake, it's hardly surprising that bonuses frequently give rise to legal disputes.

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Last Updated: 31 Aug 2010

Scheme rules generally give employers a broad discretion - often described as 'absolute' - over whether to pay a bonus and how much it should be. Nonetheless, the courts are prepared to step in to prevent discretion being exercised irrationally or in bad faith. This was confirmed in a recent bonus claim against Commerzbank, although the Court of Appeal emphasised the high hurdle an employee must overcome to succeed. Importantly, the court also ruled that the 1977 Unfair Contract Terms Act could not be used to strike out contractual provisions that unjustly deprive employees of bonus entitlement - for example, because they are working out their notice at the relevant time. But another case due to be heard soon in the High Court could tip the scales back the other way. An investment banker is claiming that Barclays Services Jersey acted unlawfully by dismissing him early to avoid its bonus obligations and also had a 'duty to co-operate' with him in meeting his bonus sales target. Watch this space.

- Michael Burd and James Davies, Lewis Silkin LLP solicitors, e-mail: employment@lewissilkin.com.

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