A recent EAT decision is a helpful reminder that bonus arrangements may become binding sooner than employers expect. Once the relevant approval has been given, it may be too late to introduce further conditions or caps, even if the final bonus figure has not yet been calculated.
In this case, the employee worked in the employer’s Cloud and Infrastructure Services Division. In March 2020, he attended a managers’ presentation about a new “kitty bonus”. Under the kitty bonus scheme, employees could receive 1% of the first year’s invoiced revenue from new client contracts they had secured for the employer. The presentation said the bonus was subject to Sector Lead approval. It also included a disclaimer stating that the PowerPoint was only a broad overview and should not be treated as complete without the policy document, which would take precedence.
The following month, the employee secured a contract with John Lewis. The Senior VP and Global Head of the employee’s department, who was ordinarily regarded as the Sector Lead, approved a kitty bonus of 1% of the first year’s revenue on the contract and confirmation was provided to HR. It was then determined that the bonus would require approval from a more senior manager and would be capped at $150,000. Neither of these additional requirements had been covered in the March 2020 presentation.
There was some internal discussion about whether the cap should apply. However, in February 2021, the employee was paid a kitty bonus for the John Lewis contract capped at $150,000.
The employee brought an unlawful deduction from wages claim. The difference was significant. He had been paid $150,000 but said that without the cap his bonus entitlement would have been more than £500,000.
The Tribunal initially rejected the claim. It held that the bonus had not crystallised until it had been formally communicated to the employee in December 2020 and that the earlier approval by the Senior VP and Global Head was not enough, because the evidence showed that approval was required further up the chain.
The EAT overturned that decision. It found that the bonus had crystallised in June 2020, prior to the imposition of the cap. Although the bonus amount had not been quantified at that stage, the approval had been given by the person ordinarily regarded as the Sector Lead. That was consistent with the terms explained to staff in the March 2020 presentation. The later decision that further approvals and a cap were needed did not change this, particularly where the evidence showed uncertainty about whether a cap should be imposed. The employee was therefore entitled to the balance of the £516,000 kitty bonus, and the EAT substituted that finding.
For employers, the practical lesson is to ensure that bonus schemes are drafted and communicated clearly from the outset. Any approval requirements, caps, discretion and conditions should be set out upfront, rather than introduced or clarified later. Employers should also make sure that managers understand the limits of their authority when discussing or approving bonus arrangements, as informal communications or presentations may carry more weight than intended.
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