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WRC Upholds Contractual Discretion to Pay a Reduced Bonus

Introduction: In the recent case Vithaldas v UCC Academy DAC, ADJ-00032510, WRC Adjudication Officer, Thomas O’Driscoll, decided that the Respondent is entitled to exercise contractual discretion in the level of the CEO’s annual bonus and this was not in breach of the Payment of Wages Act 1991.

Facts: The Complainant is employed in the role of CEO of the Respondent company, a subsidiary company of UCC. The Complainant commenced employment in this company on 14 January 2014, working under a series of fixed term contracts until becoming a permanent employee in March 2019. The Complainant is on a salary of €9,333.33 per month and asserts that she is entitled to an annual bonus payment of 10% of her salary. In the 2020 financial year she received only a 4% bonus and claimed that this was in breach of the Bonus Scheme Policy as operated by the Respondent and that the outstanding sum of €6,512.00 is payable to her under section 5 of the Payment of Wages Act 1991. The Respondent had given the Complainant a pay rise which was backdated to October 2020 and which the Complainant admitted that it was not expected.

The provisions of the Performance Management Policy (the “Policy”) of the Respondent states that where an employee achieves a rating of ‘3’ or above they are entitled to receive their full bonus. The Complainant has achieved this rating every year, including the year in question and therefore submits that she is entitled to receive her full contractual bonus of 10% of her salary, a sum of €6,512.00.

The Respondent refuted this claim and asserted that they were within their contractual rights to exercise discretion to the considerations of the Complainant’s bonus. The relevant provisions are set within the Complainant’s contract of employment at Clause 7 (d) which states “The bonus scheme is entirely at the discretion of the Company and may be withdrawn by the Company at any time without notice to you. The payment of a bonus in a particular year is not a guarantee of a bonus payment in subsequent years.”

The Respondent claimed that the Complainant is seeking to focus solely on the performance element of the Policy, where the Respondent is within its rights to exercise discretion on the level of the bonus due to any factor. The Respondent further submitted that the Policy, which was introduced in August 2018 for staff, is not relevant to the claim at hand as it does not apply to the Complainant. The Complainant’s bonus scheme is administered by the Board whilst the Policy is administered by the Complainant in her role as CEO. Additionally, the Respondent submits that there were extraneous circumstances arising from the Covid-19 pandemic, such that its parent, UCC, had to provide added support to allow them to reach a break-even position for the year and this was the reason for the exercise of its discretion in relation to the Complainant’s bonus.

The Respondent cites Jim Devlin v Electricity Supply Board (EAT PW550/2011) which addresses the argument that although contractual discretion may appear absolute, it is not unfettered and must be exercised reasonably and in good faith – the Respondent submitted that the non-payment of a full level bonus by a largely publicly funded body in the context of the Covid-19 pandemic was not an unreasonable exercise of such discretion.

Decision: It was found that the contractual basis for the Complainant’s bonus was not by reference to the Policy but by a scheme unique to her role as CEO. In addition to this, the wording of the contractual discretion of the Respondent in respect of the bonus payment is unambiguous. However, this discretion must be exercised reasonably and in good faith. The Adjudicator found that the Respondent had the discretion to pay no bonus under the contract but instead paid her 4% rather than the full 10% bonus. The Adjudicator took into account that the Complainant received an unexpected pay rise in the year in question and also considered the financial implications of the Covid-19 pandemic and decided that the exercise of the discretion by the Respondent was reasonable and fair and was not an unlawful deduction under Section 5 of the Payment of Wages Act 1991.

Takeaway for the Employers: Employers should note that although a contract of employment may specify authority to exercise discretion on a bonus payment, this discretion must be exercised reasonably and in good faith to be a lawful deduction.

Link https://www.workplacerelations.ie/en/cases/2021/august/adj-00032510.html

Authors – Anne O’Connell and Hannah Smullen

26th August  2021

Anne O’Connell Solicitors

19-22 Lower Baggot Street, Dublin 2

www.aocsolicitors.ie

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