Can discretionary bonuses paid to employees become contractual? In the case of Bluestones Medical Recruitment Ltd V Swinnerton, the Employment Appeals Tribunal (EAT) held just that.
The claimant had worked for Bluestone in several different roles, eventually as a General Manager. In his earlier roles, his contract referred to him receiving a discretionary bonus. However, on promotion to a General Manager, it was agreed he would instead receive a monthly bonus. Not quite as straight forward as it might appear, the bonus was paid as a loan with the intention that the claimant would become a shareholder. The bonus would then be paid as dividends and the loan repaid. There was, however, a degree of uncertainty as to when and how the contract changed.
The EAT found that, regardless of being phrased as “discretionary”, the bonus payment had a contractual entitlement. The crucial thing to note from this ruling is the confirmation that discretionary bonuses can be contractual. It is therefore important to be mindful of how bonus schemes are operated, especially if they are intended to be discretionary.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.