Retrospective Cap on Bonus Was Unlawful Deduction from Wages

The Employment Appeal Tribunal (EAT) has ruled that the belated imposition of a cap on an employee's bonus amounted to an unlawful deduction from wages, overturning a decision of the Employment Tribunal (ET) dismissing his claim (Chandrashekarappa v Wipro Ltd).

The employee worked in a sales role. He had attended a presentation in March 2020 at which he was informed that a bonus of up to 1 per cent of first-year revenues generated by new sales could be paid, subject to approval by a sector lead head. On 1 July, after he had contributed significantly to winning a major contract, his line manager wrote to a sector lead head proposing that he receive a 1 per cent commission on the contract. The sector lead head gave his agreement that day, and the line manager informed the employee. On 14 July, however, the sector lead head indicated to the line manager that approval from more senior managers was required. When this approval was sought, a cap of $150,000 was imposed. Had the cap not been in place, the employee would ultimately have received a bonus of more than £516,000. He brought an ET complaint of unlawful deduction from wages.

Rejecting his claim, the ET found that the bonus had not crystallised into a quantifiable legal entitlement when the sector lead head had given his agreement to a 1 per cent payment. Although he seemed to have been willing to give his own approval, he had not thought that he had the last word or that it was within his authority to authorise the payment. There was no legal entitlement to a quantifiable amount until such an entitlement had been communicated to the employee. This had happened in December, and the payment communicated was subject to the cap.

Ruling on his appeal against that decision, the EAT found that, instead of focusing on the sector lead head's subjective view on 14 July 2020, the ET should first have analysed the position on 1 July. Had it done so – and had it concluded that once the sector lead head had exercised his discretion in accordance with the terms set out in March 2020, the employee's entitlement to the bonus had arisen – then any attempt to change that by introducing higher-level approvals or a cap would have been ineffective in altering his entitlement to future payment once the relevant revenue figures were known.

The EAT considered that it was in position to determine the matter itself rather than remitting it to the ET. On the facts as found by the ET, the only correct outcome was that once the sector lead head had accepted the line manager's proposal that the employee should receive a 1 per cent bonus in accordance with the terms that had been set out in March 2020, the employee had a legal entitlement to be paid 1 per cent of the first-year revenues resulting from the contract he had been instrumental in securing. It was not subsequently open to the employer to add further conditions to that entitlement, whether by seeking approval at a higher level within the business or by belatedly applying a cap.