The recent case of Small v The Boots Co Plc and Boots UK Ltd, demonstrates again that bonuses that may be called “discretionary” may not actually be discretionary but part of an employees entitlement.
Some Boots warehouse employees were transferred in accordance with TUPE to another company. Whilst employed by the new company, the warehousemen received no performance-related bonus although those still employed by Boots continued to receive theirs. Then the warehousemen transferred back to Boots. Following that transfer they made a claim for unlawful deductions in relation to bonuses which had not been paid while with the new company.
The Employment Tribunal (“ET”) decided that there was no unlawful deduction from wages because the performance-related bonus was discretionary, relying on the Staff Handbook which said “After a qualifying period of service, there are additional discretionary benefits, such as bonuses… However, they are not intended to be contractual.” The Tribunal concluded that there was no obligation to pay a bonus.
The Employment Appeal Tribunal took a different view saying that the ‘discretionary bonus’ did have contractual effect despite the wording in the Staff Handbook. The ET should have decided the meaning of ‘discretionary’ in the handbook and to what the discretion applied. The EAT said that this meaning was not clear as the discretion could have applied to the provision of an overarching bonus scheme or to the decision each year to operate a bonus scheme or to the method of calculating the bonus or other possibilities.
Last, the EAT said that “if Boots and the transferee company were merely obliged to exercise a discretion in relation to the provision of a bonus, that discretion must be exercised rationally and in good faith.” (my underlining).
