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The Employment Appeal Tribunal (EAT) has confirmed that employers cannot retrospectively impose new conditions on a discretionary bonus once the relevant discretion has been properly exercised.
In the case of Chandrashekarappa v Wipro, the employee worked in a sales role and participated in a discretionary bonus scheme under which employees could receive up to 1% of revenues generated from new business, subject to approval by the relevant sector lead. After securing a significant contract with John Lewis Partnership, the employee’s sector lead approved the payment of the full 1% bonus.
Several weeks later, a different senior manager introduced additional requirements, including further executive approval and a bonus cap of $150,000. Wipro subsequently informed the employee that his bonus would be limited to the capped amount, despite the earlier approval. The employee argued that he was entitled to the full 1% bonus, worth more than £500,000.
While the Employment Tribunal initially rejected his claim, the EAT overturned that decision. It held that the employee’s entitlement had crystallised when the sector lead exercised their discretion and approved the full bonus in accordance with the scheme as communicated to staff. Wipro could not subsequently “move the goalposts” by introducing a new approval process or a cap that had not formed part of the original scheme.
Conclusion
This case highlights the importance of clearly documenting bonus arrangements and ensuring that any conditions, approval requirements or payment caps are communicated before decisions are made. Once discretion has been exercised in accordance with the rules of the scheme, employers may be unable to retrospectively alter the employee’s entitlement.
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