ATEAM in a top bank is being briefed by the boss about an imminent takeover. He (and it is still usually a he) wants to keep his top talent onboard and motivated so promises that bonuses will be good this year, at least as high as last year.
Nine months later, the bank's management decrees that because of the merger costs, political and regulatory pressure and a dip in profits, bonuses are to be cut significantly -- by 90 per cent. Not surprisingly, the team is disappointed. However, this is not the end of it. They decide collectively to sue for breach of contract.
"If you are dealing with bonuses that could be significant, for example greater than the size of your salary, then it becomes easier to justify taking legal action," says Clive Howard, a leading employment lawyer from Slater & Gordon. "After all, if you are worth a significant bonus, you must be doing something right and the negative effect of challenging your employer is reduced as it should be relatively easy to walk into another job."
While the scenario above is fictional, something similar happened last year and the litigants won their case.
"You do not have to have the bonus agreement in writing," says Howard. "A verbal agreement can be a binding contract.
That is why it is important to keep a detailed record of any conversations -- the time, place and who said what to whom."
Howard says that the first thing is to know what kind of bonus you are receiving.
He says: "This is more complicated than you might think. There are contractual bonuses and discretionary bonuses but often there is not a clear distinction between the two.
"Assume you have always received a set bonus paid as a proportion of your team's performance and that changes. It could be described by your employer as 'discretionary'.
However, it could be regarded by a court as 'contractual'.
A bonus could be implied into your contract by custom and practice if, for example, over the past five years you have always been paid a bonus on very specific outcomes and for clear reasons. If the bonus is deemed by the court to be contractual, your legal rights are much stronger."
Purely discretionary bonuses are harder to challenge because -- in legal terminology -- you can only challenge the decision if it is "irrational or perverse". …