In a recent case, the Employment Appeal Tribunal has provided a useful reminder of the importance of ensuring that bonus schemes are set out clearly and correctly at the outset.

In Chandrashekarappa v Wipro, the employee worked for Wipro Limited in a sales role. In March 2020, the employer gave a presentation announcing a discretionary bonus of up to 1%, based on staff securing new business revenue. Payment was stated to be subject to sector lead approval. The employee later secured a John Lewis Partnership contract and the sector lead approved a full 1% bonus payment to the Claimant, amounting to more than £500,000. Several weeks later, a different senior manager introduced further conditions for payment of the bonus: a requirement for higher-level senior executive sign-off and a cap on the amount payable, which was formally communicated in December 2020. The employee maintained that he was entitled to the full 1% bonus, relying on the sector lead’s initial approval.

The employee was not paid the bonus and brought an unlawful deduction from wages claim against his employer. The Employment Tribunal decided that the employee had no legal entitlement to the full 1% bonus because of the conditions imposed in December 2020.

The employee appealed the Employment Tribunal’s decision. The Employment Appeal Tribunal (EAT) found that the tribunal had erred by concluding that further conditions could later be introduced and relied on. The EAT said that once the bonus terms had been put forward and the sector lead had approved the employee’s award in line with the scheme as announced, the employee’s entitlement had crystallised. Wipro could not “move the goalposts” after the original terms had been outlined by retroactively adding further approval layers or a cap.

This case illustrates the need for employers to ensure that bonus schemes are properly thought through from the outset. Employers should clearly communicate eligibility for bonus payments and any relevant terms and conditions upfront, including whether any caps or approval requirements apply. This should be implemented consistently across all plan documents, presentations and management decision-making. As this case shows, once an authorised manager approves an award under a communicated scheme, the employee’s right to the bonus may have crystallised, leaving little room to impose later caps or extra approvals.

If you have bonus schemes that you would like to be reviewed, we’re here to help. Get in touch with us at Employment@schofieldsweeney.co.uk.