UK: Bonus: Can An Employee Bring An Unlawful Deductions Claim?

Last Updated: 14 May 2009
Article by Robert Hill, Nick Dent and Adam Lambert

Under section 23(1) of the Employment Rights Act 1996 ("ERA"), an employee can bring a claim for unlawful deductions in the employment tribunal, but only if the claim is for a quantifiable sum of wages. If the claim is in fact for an unquantified sum, the employee will need to bring a claim for damages for breach of contract instead.

However, employment tribunals do not have jurisdiction to hear breach of contract claims brought by employees who are still employed (tribunals can only hear claims for breach of contract where employment has terminated, the claim was outstanding on termination, and the former employee is claiming no more than £25,000). Therefore, unless the employee can convince a tribunal that it has jurisdiction to hear his claim as a deduction from wages claim, he will be forced to bring a more expensive and time consuming claim in the County Court or High Court instead.

In Coors Brewers Ltd v Adcock (2007), the Court of Appeal held that unlawful deductions claims are designed for "straightforward claims where the employee can point to a quantified loss".

The Court of Appeal recently had to grapple how such claims can apply to bonus in the case of Tradition Securities and Futures SA v Mouradian (2009).

Mr Alexandre Mouradian was (and remains) head of the London Exchange Traded Options on the Fixed Income Desk at Tradition, a broker of financial and non-financial products. His employment contract stated that his base salary would be £300,000 per annum, and that:

  1. he was entitled "to receive a bonus in accordance with this Clause in relation to the desk";
  2. "the bonus will be paid from a bonus pool equal to 60% of net billed Company Income after deductions of the following costs [set out later in the document]"; and
  3. the bonus "will be divided [amongst the members of the desk] in such amount as you deem appropriate in consultation with the Chief Executive Officer whose reasonable decision will be final."

Before Tradition declared the amount in the January 2007 bonus pool, Mr Mouradian allocated £100,000 out of the pool to three members of his team and the remainder to himself.

Tradition then declared the amount of the bonus pool. However, Mr Mouradian contended that Tradition had arrived at this amount by deducting sums it was not authorised to deduct under the terms of his contract, and that the net shortfall to the bonus pool (and therefore to his bonus) as a result was £92,571.60.

Mr Mouradian brought an unlawful deductions claim for this shortfall. The tribunal had to decide whether it had jurisdiction to hear the claim, which turned on whether Mr Mouradian was claiming a quantifiable sum. The tribunal held that it did have jurisdiction because, in practice, Mr Mouradian determined the apportionment of the bonus pool "in his absolute discretion", so once he had decided what his team would be paid, he knew the rest of the bonus pool belonged to him.

The EAT upheld the tribunal's decision, as did the Court of Appeal.

Tradition had argued that Mr Mouradian's claim was for unquantified damages for breach of contract because both the amount and form of the bonus were dependent on the exercise of Tradition's contractual discretion, and the tribunal should not have made findings of fact about this in order to determine whether it had jurisdiction.

The Court of Appeal disagreed. It held that the tribunal had to make certain findings of fact to determine whether Mr Mouradian had sole discretion as to both the amount and the form of his bonus, and once it had found that he did, it followed that the employee's loss was quantifiable and his claim was therefore appropriate for determination by the tribunal under the unlawful deduction from wages provisions in the ERA.

Conclusion

The decision only confirms the tribunal's jurisdiction and the basis on which the claim can be made. It does not determine the merits of the case and whether Tradition is liable to repay Mr Mouradian the sum claimed (he will still need to show Tradition had no authority to deduct the additional costs from the bonus pool, his bonus amounted to "wages" under ERA, and the total amount of those wages paid to him was less than the amount properly payable after deductions).

We already know from the Farrell Matthews case (Farrell Matthews and Weir v Hansen (2005)) that once a discretionary bonus has been awarded (even if it has not yet been paid) it falls within the definition of "wages", since there is a legal obligation to pay it, so an employee can bring an unlawful deductions claim for a failure to pay all or part of it.

However, we also know from cases such as Delaney v Staples (1992) (where a non-contractual payment in lieu of notice was subject to mitigation by the worker, so was held not to be a quantifiable sum), that tribunals have in the past been reluctant to deal with payments where the amount deducted cannot be calculated precisely in advance.

Whilst the Court of Appeal thought this was a "straightforward case" within Coors, practitioners might need some convincing - the tribunal's willingness to make findings of fact in this case might suggest that tribunals are more comfortable than they once were in finding an amount to be quantifiable even when it could not have been known in advance - Mr Mouradian only knew he would get the balance of the bonus pool, but had no idea what this would be
at the time he determined the bonuses of his team. It will be interesting to see how other tribunals deal with
this issue.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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