Richard Grogan: Bonus payments and the law
Employment law solicitor Richard Grogan of Richard Grogan & Associates looks at the law surrounding bonus payments as the end of the year looms.
The issue of bonus payments regularly arises particularly where an employee is leaving close to or at the time of the payment of a bonus.
A leading case on this is the case of Bord Gais Energy Limited –v- Thomas PWD1729 where the Labour Court held that an employee was not entitled to be paid a bonus because the company bonus rules required employees to be employed at the time the bonus was due to be paid.
There are many companies who will calculate the bonus on a particular date but will then have a provision that the bonus is not paid unless the employee is in employment on the date that the bonus is due to be paid, which can sometimes be a number of months later.
An issue that often arises as to what happens if an employees has put in their notice. Take a situation where an employee must give notice of one month. The bonus is calculated on, say, the company accounts at 31 December 2019. The bonus payment is due to be paid on the 27th April as part of the April payroll. The employee gives notice on the 1st April. Clearly they will be still in employment on the 27th April, but will be leaving a few days later.
To avoid this situation, some policies will now have a provision that not only must an employee be in employment but that if the employee has served any notice of termination or has been served with a notice of termination, even though that termination date may be after the date that the bonus would be payable, that in those circumstances no bonus is payable.
The reality of matters is that a bonus payment is there to normally encourage employees to remain and is seen as a way of rewarding employees who are committed to the company or firm.
Once matters are properly set out in a contract or bonus scheme and communicated to employees, then it is effectively a contractual term.
It is also important in relation to any bonus scheme that it is quite clearly set out that any bonus scheme is discretionary. If that is not done then by virtue of what could be called custom and practice employees could seek to enforce bonuses. Some companies will have a provision that a bonus scheme applies for a particular year and that it is subject to being renewed but that there is no contractual right to have it renewed as it is a purely discretionary scheme.
It is evident that a considerable number of cases are now going through the WRC relating to bonus payments. In many of these the employees are being successful due to the fact that the employer does not have the appropriate documentation in place.