UK High Court Awards £5.3 Million After Employer Wrongly Refused Discretionary Bonus
Landmark judgment finds employer’s decision irrational and upholds employee claim for substantial bonus payment
The High Court of Justice in the United Kingdom has delivered a significant ruling in favour of an employee who was denied a discretionary bonus, ordering the employer to pay £5.3 million after finding the refusal to award the payment was irrational.
In a judgment that could influence how discretionary bonus schemes are administered across the private sector, the court held that although bonuses labelled “discretionary” give employers latitude, that discretion must be exercised rationally, consistently with established contractual and legal principles.
The claimant, a senior executive whose remuneration included a discretionary bonus scheme, argued that the employer’s refusal to award the payment was a breach of the implied duty to exercise contractual discretion honestly and reasonably.
The court agreed, underscoring that a discretionary bonus, once declared or determinable through application of contractual terms and practice, cannot be withheld arbitrarily and must reflect legitimate criteria rather than subjective or capricious decision-making.
Judges emphasised that the rationality standard—long a feature of UK employment law when assessing the exercise of employer discretion—applies equally to bonus awards, requiring that decisions are grounded in objective reasoning and relevant considerations.
Employers were reminded that while they retain discretion in bonus schemes, it cannot be exercised in a way that undermines contractual expectations or is perverse relative to the facts.
Legal experts said the ruling underscores the importance for companies to formalise clear, transparent bonus policies and to document decision-making processes to ensure they meet the legal threshold of rationality.
For employees, the award demonstrates that discretionary labels do not immunise employers from liability where there is compelling evidence that discretion was applied without reasonable basis or consistent justification.
The court’s decision—one of the largest awards in a discretionary bonus dispute—may prompt employers to review existing remuneration frameworks to mitigate the risk of similar litigation and align bonus governance with robust contractual and legal standards.
In a judgment that could influence how discretionary bonus schemes are administered across the private sector, the court held that although bonuses labelled “discretionary” give employers latitude, that discretion must be exercised rationally, consistently with established contractual and legal principles.
The claimant, a senior executive whose remuneration included a discretionary bonus scheme, argued that the employer’s refusal to award the payment was a breach of the implied duty to exercise contractual discretion honestly and reasonably.
The court agreed, underscoring that a discretionary bonus, once declared or determinable through application of contractual terms and practice, cannot be withheld arbitrarily and must reflect legitimate criteria rather than subjective or capricious decision-making.
Judges emphasised that the rationality standard—long a feature of UK employment law when assessing the exercise of employer discretion—applies equally to bonus awards, requiring that decisions are grounded in objective reasoning and relevant considerations.
Employers were reminded that while they retain discretion in bonus schemes, it cannot be exercised in a way that undermines contractual expectations or is perverse relative to the facts.
Legal experts said the ruling underscores the importance for companies to formalise clear, transparent bonus policies and to document decision-making processes to ensure they meet the legal threshold of rationality.
For employees, the award demonstrates that discretionary labels do not immunise employers from liability where there is compelling evidence that discretion was applied without reasonable basis or consistent justification.
The court’s decision—one of the largest awards in a discretionary bonus dispute—may prompt employers to review existing remuneration frameworks to mitigate the risk of similar litigation and align bonus governance with robust contractual and legal standards.
