5 June 2006

The most talked about ‘promise’ made by a boss to an employee is when Tony Blair allegedly promised Gordon Brown that he would give him the top job in the cabinet. It is rumoured that in May 1994, over dinner at the Granita restaurant, Blair promised Brown that if Labour secured a third term - he could be Prime Minister. Ten years on the restaurant has closed down, Labour are on their third term and Blair seems no closer to fulfilling his alleged promise to hand Brown the promotion.

While it is highly unlikely Mr Brown would ever present a claim to the employment tribunal it would not be due to lack of merit, assuming of course the promise was made. When an employer makes a promise of a promotion or a bonus which is conditional upon an event such as reaching a target and this event is fulfilled, then the employee becomes contractually entitled to the bonus/promotion. Oral promises, while harder to prove at tribunal, are as binding as the written terms in a contract of employment.

Discretionary bonuses

It is widely accepted by employers that the use of discretionary bonus payments allows them the flexibility to withhold payment should circumstances change and they no longer feel a bonus is appropriate. The effect of this is that even if the target is reached, the employer can still decide not to pay the bonus. However, recent judgments have indicated that discretionary bonuses are not as flexible as was thought.

In Horkulak v Cantor Fitzgerald International the Court of Appeal held that there is an implied term that a discretionary bonus clause should be exercised in good faith, genuinely and rationally when awarding or withholding a benefit. This means that employees have a reasonable expectation that the employer will excise its discretion lawfully and not withhold payment on arbitrary or capricious grounds.

The message is clear. Oral promises and discretionary bonuses should not be given unless the employer is prepared to deliver. If employers use assurances of bonuses to motivate employees and have no intention of paying out, then they will be left with disgruntled and disillusioned employees. This does not bode well for a happy work environment and your most valuable asset (your employees) could turn into your biggest liability when the claims start rolling in.

If an employee does feel aggrieved about the non-payment of a bonus, his first step would be to raise a grievance. Once the internal grievance procedure has been exhausted, the employee would be in a position to present a claim to the employment tribunal for breach of contract and/or unlawful deduction of wages. It should be noted that breach of contract claims in the employment tribunal are limited to £25,000 so Mr Brown would have to bring a claim in the county court if he was to recover his full damages.