Bonus Payments and Allowances – Discretionary or Not?

In the recent case of Sandra Cleary, Ellen Bradley, Joyce Donovan, Angela Carmody, Joan Thompson, Anita Malone, Yvonne Masters, Maureen Andres, Brian McCarthy and James Dowdall v B&Q Ireland Limited the appellants were a number of employees of different branches of the Defendant who sought to challenge an Employment Appeals Tribunal (“EAT”) determination which overturned a Rights Commissioner decision that the respondent had wrongfully failed to pay a winter/summer bonus and a zone allowance and which rules that the appellants were entitled to compensation for the unlawful deduction.The respondent argued that the appellant’s contract of employment was clear insofar as bonus payments were discretionary and therefore it had the power to review or withdraw the bonus scheme at any time.Employment Appeals Tribunal Decision – Winter and Summer BonusThe Tribunal found that although the terms of the appellants’ contracts of employment differed, each contained a common clause which was set out in the employee’s handbook and which provided that “all bonus schemes are discretionary and are subject to scheme rules. They may be reviewed or withdrawn at any time.”The Tribunal in effect ruled inter alia that….”there is one consistency between those two contracts and it is set out in the Employee handbook, wherein it states in bold “all bonus schemes are discretionary and are subject to scheme rules. They may be reviewed or withdrawn at any time”. That clause is clear unequivocal and incapable of any other interpretation“.The EAT concluded that the non payment of the winter and summer bonus complied with the provisions of Section 5(1)(b) of the 1991 Act and overturned the Rights Commissioner decision. It noted:”If the respondents (the employees) were not content with the appellant (the employer) retaining the power to unilaterally review or withdraw the allowance, they should not have entered into such a contract“Appellants ArgumentsThe appellant’s argued that the EAT failed to examine whether their contracts of employment contained an express provision which permitted the withdrawal of the winter/summer bonus and if so, whether their consent was required before the bonus could be withdrawn. They also argued that the withdrawal of a “declared” bonus couldn’t occur on the exercise of the employer’s discretion.Respondent’s ArgumentsThe respondent submitted that none of the material put before the court provided any basis for overturning Tribunal’s findings. In essence the contracts of employment were clear and unambiguous in respect of the discretionary nature of the bonus payment. In addition the appellants failed to provide an adequate rebuttal to the clear meaning of the words used in the clause that “all bonus schemes are discretionary…[and] may be reviewed or withdrawn at any time.”Zone AllowancePrior to 2012, the zone allowance was a form of compensatory payment to those who worked in the Dublin stores, because the cost of living in Dublin was deemed to be higher than other regions of the country. In  essence the employees would be paid the allowance in consideration of their working for the employer in a “zone” in which it was recognised additional living expenses would be incurred.In January 2013 the respondent was forced to petition to the High court for the appointment of an examiner under the provisions of the Companies (Amendment) Act 1990 which was approved by the High Court on 23 May 2013. By letter dated 29th February 2012, the respondent affirmed its decision to remove the allowance by stating “there is no longer a valid reason to pay a higher rate of pay in the three Dublin stores” The respondent’s offered to buy out the zone allowance which was refused by the appellants.Zone Allowance – Appellant’s SubmissionThe appellants submitted that the Tribunal erred in law in concluding that the allowance did not fall within the meaning of ‘wages’ and failed to engage in any appropriate analysis of the term ‘expenses’ for the purposes of section 1 (1)(i) of the Payment of Wages Act 1991. The appellant submitted that there was no evidence before the Tribunal from which it could be inferred that the zone allowance was an expense under section 1(1)(i) of the Act of 1991.Zone Allowance – Respondent’s SubmissionThe respondent argued that the appellants had to show that they had a contractual entitlement to be paid the zone allowance and that it had been accepted by the parties that the Tribunal’s finding that the  “zone allowance” was an “expense” within the meaning of Section 1(1)(i) of the 1991 Act could not be disturbed unless there w  and that there was an absence of evidence before the EAT upon which such a finding could reasonably made.The LawMcDermott J referred to the various relevant provisions set out in the Payment of Wages Act 1991, the Payment of Wages (Appeals) Regulations 1991 (S.I. No.351 of 1991) and the provisions of Order 84C of the Rules of the Superior Courts, 1986 (as amended).Decision on the Winter/Sun BonusIn his judgement delivered on 8th January 2016, McDermott J provided inter alia that”The court was satisfied that the bonus at issue in this case was not declared by the employer at any stage and the Tribunal was not invited to and did not make any finding that a bonus had been declared. There was no announcement that a particular bonus was payable. The bonus scheme clearly operated on a basis that did not require such an announcement. It was payable at the rate of 3% in June 2012 for the period worked between August 2011 and January 2012. The attempt to categorise the bonus payable in respect of the period from August 2011 to January 20012 as a form of declared bonus is therefore misconceived”McDermott J stated that he was satisfied that the terms of the contract and bonus scheme “must be interpreted in the overall context of the contract“. The bonus scheme applied to each eligible employee during the course of his/her employment. To be eligible for the bonus payment employees had to have at least six months service. The bonus was calculated at the rate of 6% per annum of the gross basic pay of the employee and was payable twice annually. The scheme provided that an eligible employee was to be paid a 3% bonus on the completion of the six month Winter or Summer period regardless of whether he/she remained in employment for the full year. The bonus was not contingent at that stage upon a satisfactory performance by the employee or any other specified conditions. It was not specifically linked to the profitability of the company. The withdrawal of the bonus was announced in January, 2012, after the relevant six month period, to take effect from 1st April 2012. The worked six month period bonus was payable in June, 2012. The respondent submitted that notwithstanding these important elements of the contract and bonus scheme, the employer retained an absolute discretion to withdraw payment at any time.The court held that the decision to withdraw the bonus was not unreasonable given that the respondent was obliged to seek examinership during a very difficult financial situation but payment of bonus crystallised as a contractual obligation once it was earned. It found that the EAT erred in law in interpreting the discretion vested in the employer to withdraw the scheme at any time as being applicable or attaching to this period.Decision on the Zone AllowanceThe Court noted that the zone allowance was paid separately from the amount paid per basic salary for the purpose of “compensating for working in a particular area” and was properly to be regarded as an expense based on the wider definition of the term “vouched expense”It held that the withdrawal of zone allowance which was akin to an expenses allowance was not a deduction of wages under section 1(1)(i) of the Payment of Wages Act 1991.