Bonus schemes, transfer between departments

Case ref: 5.3/May 2005

Case summary

Our member Ms Y is employed by a major Government Department. In addition to operating a basic pay system, the Department also has a bonus scheme. The scheme is based on recommendations relating to performance achieved. 

In 2004 a panel set up to review bonuses and concluded that Ms Y should be given an award. However, unbeknown to Ms Y, another panel set up in the Business Unit she had transferred to within the last 2 months of the year from which decisions on bonuses were made and concluded that an award should not be made. 

The upshot was that Ms Y was told in writing that she would receive an award. The relevant payment was made from August 2004. Subsequently Ms Y then received a letter saying that a mistake had been made.

Advice requested

The PCS Bargaining Unit asked Thompsons for the following advice: 

a) Is there a claim for shortfall of wages under the ERA 1996 act in these circumstances, or would a breach of contract claim be possible given that Ms Y is still employed by the Department. 

b) Is Cheque Point v Radwan the relevant case law. Can we argue that the written notification is contractual and that therefore the department cannot later withdraw the award, because of an 'administrative error'. 

c) Merits of the case and whether I can argue that as the payment was not due until 1 August 2004, the 3 month time limit applies from that point.

Key advice provided by Thompsons

The solicitor provided the following comments on how the law applies in these types of cases: 

"Section 13 of the Employment Rights Act 1996 provides that an employer must not make any deductions from wages unless: 

(1) it is authorised by statute (e.g. PAYE or national insurance); or 

(2) it is authorised by the worker's contract; or 

(3) the worker has previously signified in writing their consent to the making of the deduction. 

"Section 27 of the Act defines a bonus as wages. 

"I have considered the case of Chequepoint (UK) Ltd v Radwan (2000). In this case, the employers had absolute discretion both as to whether to pay a bonus and, if so, the amount. The terms of the bonus provided for the employer to notify the employee of the terms and conditions of the bonus scheme. Once the scheme was notified, the employee was entitled to the bonus. The employee was able to show that the conditions of the scheme were achieved and so became eligible for the bonus. 

"In contrast, the Department states Ms Y was considered by the panel who did not feel able to award her a bonus. The first panel erred in considering Ms Y. The letter to Ms Y was sent in error. Therefore although Ms Y had been notified of a bonus, she had not in fact qualified for it. This the key distinction with the above Court of Appeal case. 

"I have also considered the terms of the Performance Management User Manual which states that where an individual has changed jobs during the reporting year, a Performance Pay Recommendation should be completed for each period of employment, even though this may mean that the majority of the report year covers performance in a different business area than the one in which the individual is clustered. The individual is clustered by the panel which will award the bonus." 

The solicitor then went on to advise that: 

"I am sympathetic to Ms Y's situation. It does seem unfair that her bonus was based on the final two months of the reporting year, when she started her new job. However, the terms of the scheme are that she should be considered for the job she worked in at the end of the reporting year.

"It would appear that Ms Y was informed on 28 May 2004 that she would not receive a bonus for her current role. The letter of 13 June 2004, (which was provided to me), to inform Ms Y that she would receive a bonus for her previous role, was sent in error. The Court of Appeal case is therefore not of assistance for Ms Y as she was not eligible for the bonus. 

"I am therefore unable to advise that Ms Y has a claim with reasonable prospects of success."

Legal Department comment

Although the Legal Department has no formal confirmation of how this case was resolved, it is known that the employer did offer to pay Ms Y half of the money she would have received if the bonus award had been made.

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