When an employer promises a discretionary bonus scheme to incentivise staff, a delicate legal tightrope must be walked. While the initial decision to award a bonus may remain entirely discretionary, once that discretion is formally exercised in favour of an employee under specific terms, the employer's freedom of movement sharply narrows. A recent landmark decision from the Employment Appeal Tribunal (EAT) serves as a timely reminder of this principle. The EAT ruled that employers cannot unilaterally "move the goalposts" or retroactively apply financial caps to a bonus after the agreed-upon conditions for the award have already been met and approved.
Background:
The dispute arose in March 2020 when a global cloud and infrastructure business introduced a new "kitty bonus" incentive plan to its sales team. According to the presentation slide deck, eligible employees could receive a bonus of "up to 1%" of revenues from invoicing a new client over the first twelve months of the contract, subject to the approval of the Sector Lead Head (SLH). In June 2020, the claimant successfully secured a major contract with a prominent retail client[A1.1].
In July 2020, the claimant's line manager formally emailed the SLH, recommending that the claimant receive the full 1% commission on the deal. The SLH replied almost immediately, stating: "I am OK. Go ahead." However, when HR and senior management realised the sheer scale of the deal—which meant that a 1% payout would equate to £516,082—they sought to apply a retrospective $150,000 cap on the bonus. In December 2020, while the company formally notified the claimant of his bonus, it declared it capped at $150,000. The original Employment Tribunal (ET) initially dismissed the claimant's case for unlawful deduction from wages, agreeing with the employer that no legal entitlement had crystallised until the actual, capped declaration was communicated.
Decision:
The EAT resoundingly overturned the initial decision, ruling in favour of the employee. The EAT found that the original ET had erred in law by treating the SLH’s subsequent, subjective anxiety about needing higher-level approval from "the gods" (senior management) as determinative of the claimant's legal rights. The EAT held that the objective terms of the bonus scheme had been clearly outlined in March 2020, requiring only the approval of the SLH.
Crucially, the EAT sought to differentiate this case from standard ad hoc bonus disputes, ruling that when the SLH gave his clear, immediate approval on 1 July 2020, the claimant's entitlement to 1% of the future revenues had legally crystallised. The mere fact that the exact monetary sum could not yet be calculated (as the first year's invoicing figures were not finalised until late 2021) did not prevent a legal right to those "wages" from forming. As the entitlement had already been approved under the original parameters, the employer had no subsequent legal right to introduce a $150,000 cap or else insist upon additional management sign-offs. The EAT substituted its own finding, ordering the company to pay the claimant the full 1% of the first year’s revenue, minus the capped amount already paid.
Implications:
This ruling delivers a clear warning: discretionary bonus schemes do not grant employers unlimited, ongoing power to alter payment terms at their whim. Once an employer establishes a discretionary bonus framework, communicates those specific terms to an employee, and subsequently exercises its discretion to approve the award, a binding legal obligation is formed.
Potential clients should note that employers are legally barred from introducing restrictive, retrospective conditions—such as monetary caps or extra layers of management approval—after an employee has already fulfilled their side of the bargain. If you have secured a significant business target based on a promised commission or bonus structure, only to have your employer attempt to reduce your payout after the fact, the law protects you from such unfair changes. Any attempt to unilaterally pare back an approved commission plan constitutes an unlawful deduction from your hard-earned wages, and the courts will hold employers strictly to the terms they originally set.
