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Payment of Wages

Year End Bonuses in the Workplace-the Essentials

Disputes and rows often flare up around bonuses at the end of the year.

Disappointment and a sense of  betrayal are sentiments felt by employees when they discover they are not going to receive the expected bonus.

Not only is the bonus expected but there is a feeling, quite rightly, that it may well have become a contractual entitlement by reason of its payment over a number of years.

What is the legal position? Let’s take a look, shall we?

An employee will have a strong argument, in my view, that she has a contractual entitlement to a bonus if

  1. It has been paid regularly and consistently over a number of years with no regard to the bonus being contingent on a particular standard of performance, or any other targets and
  2. The contract of employment does not state it is discretionary.

If the contract or staff handbook states the bonus is discretionary the argument will swing towards the employer who will rely on the contract and adopt the position that the bonus is entirely at the employer’s discretion and there is no guarantee in that regard.

Departing employee

A further issue that can arise is whether an employee who is leaving is entitled to a bonus if he is no longer employed, or he has handed in his notice.

The Labour Court in Bord Gais Energy Limited v Thomas (PWD1729) held that he employee was not entitled to a bonus because the company rules said the employee must still be in employment with the company. Would the decision have been different, however, if this rule was not set out in a staff handbook or contract of employment?

If the employee had reached the targets for a bonus and was entitled to it when the targets and performance were assessed you would have to think the employee would still have a strong claim for that bonus even if she then handed in her notice and the bonus was not to be paid until the employee had left the job.

That assumes, of course, that there is no stipulation in the contract or staff handbook that the employee must be in employment at the time of payment of the bonus to be eligible for payment.

Conclusion

From an employer’s perspective it is advisable that it is made crystal clear in the contract or staff handbook that any bonus payment is at the sole discretion of the employer an will depend on the performance of the business and the performance of the individual employee.

It is worth noting what the High Court had to say in a bonus dispute case involving B&Q workers:

Cleary & Others v B&Q Ireland Limited (High Court, 8 January 2016) IEHC 119 which was a judicial review against the decision of the Employment Appeals Tribunal to uphold the employer’s right to withhold a summer bonus from the B and Q employees. The High Court held in favour of the employees because it noted the right of the employer to have discretion regarding bonus payments but also held that the discretion must be exercised reasonably.

The High Court also referred to a 2007 case Finnegan v J&E Davy [2007] IEHC 18 in which it was held:

The plaintiff could reasonably expect as a matter of principle built up from a number of years of consistent conduct in the payment of bonuses and the matter of discretion never having been mentioned to him at any stage that some bonus would be payable – the amount only dependent on the trading activities of the firm and his own performance