Bonuses: You Have Been Warned

When considering who should be entitled to a bonus payment, you may wish to place eligibility requirements within the bonus scheme in order to ensure that those who you believe deserve it are rewarded. This can include such conditions as successfully completing a probationary period or having a clean disciplinary record. It is, however, important that any conditions placed on entitlement to bonus payments are not discriminatory.

Land Registry v Houghton & Others considered a bonus scheme containing the condition that anyone with a live warning on their record would not be entitled to receive a bonus payment. The scheme gave managers discretion to determine whether warnings relating to conduct should affect eligibility. However, this discretion was not extended to other types of warning, in particular those issued for poor attendance. A number of disabled employees were issued with warnings regarding their poor attendance, the absences being related to their disabilities. This led to them being deemed ineligible to receive a bonus payment under the employer’s scheme.

The Equality Act 2010 makes unlawful any unfavourable treatment because of something arising out of a worker’s disability, unless the employer is able to justify that treatment. The Employment Appeal Tribunal in this case decided that the warnings issued to the employees were disability related. Given that these warnings automatically disentitled the employees from receiving a bonus, not paying the bonus amounted to unfavourable treatment arising from a disability.

The Land Registry attempted to justify the unfavourable treatment by saying that it had a legitimate aim in acknowledging employees’ contributions towards the business’s objectives and encouraging and rewarding good performance and attendance. The Tribunal rejected this argument, stating that whilst this objective may be legitimate, the treatment was not proportionate in achieving that aim. The main issue was the lack of discretion to disregard warnings relating to sickness absence, especially when there was discretion to waive conduct warnings. The Land Registry could not explain why there was a difference between the two approaches. Along with this, there was no discretion for managers to take into account any improvement in attendance since the issuing of the warning, which may have been reasonable given the objective of the scheme was to reward good performance and attendance.

Encouraging and rewarding employees for good performance and attendance will, in most circumstances, amount to a legitimate business aim when deciding who does or doesn’t receive a bonus payment. However, the manner in which that aim is achieved needs to be proportionate when balanced against the discriminatory impact it may have on workers with protected characteristics. It may, therefore, be worthwhile reviewing your own bonus schemes to ensure that any eligibility requirements do not fall foul of the Equality Act.

Director of Legal Services

James Tamm

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