Can an employer change bonus payments after approval?

Can an employer change bonus payments after they’ve been approved and communicated with the employee? Our employment law experts look into a recent case that highlights when entitlement to a bonus becomes legally enforceable.

This decision also provides helpful guidance on the extent to which an employer can vary bonus arrangements after a bonus has been earned.

Mr Chandrashekarappa worked for Wipro Limited in a sales role. Under a bonus arrangement known as the ‘kitty bonus’ scheme, employees could receive a payment of up to 1% of the value of new client invoicing, subject to managerial approval.

Mr Chandrashekarappa secured a significant contract with the John Lewis Partnership, following which his line manager recommended that he receive the full 1% bonus. That recommendation was approved in accordance with the scheme that existed at the time.

After the bonus had been approved, Wipro introduced a cap of $150,000 on kitty bonus payments, which had not formed part of the original bonus scheme. As a result, Mr Chandrashekarappa was paid only the capped amount rather than the full sum generated by the 1% calculation.

He brought a claim for unlawful deduction from wages, arguing that he had already become entitled to the full bonus before the cap was introduced.

The Employment Tribunal dismissed the claim, finding that further approval was required before entitlement arose.

However, the EAT allowed his appeal. Bruce Carr KC – sitting as a Deputy High Court Judge – held that the tribunal had misunderstood the operation of the scheme. The EAT found that once the claimant’s manager had approved the 1% bonus in accordance with the existing scheme rules, his entitlement had “crystallised.” There was no requirement for any additional approval, and the employer could not retrospectively impose a cap that did not exist when the bonus was earned.

The EAT substituted its own decision, holding that Mr Chandrashekarappa was entitled to the full 1% bonus, subject only to credit being given for the $150,000 already paid.

The decision highlights that while employers may retain some discretion over bonus awards, once the discretion has been exercised and entitlement has arisen, employers cannot then reduce payments by introducing new conditions or limitations.

If you have any questions relating to bonuses – or anything else that relates to employment law – please don’t hesitate to get in touch with our expert team.

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