Tread carefully and follow procedure

Tread carefully and follow procedure

Q. Our business is currently going through some hard times and we want to know if we can get rid of our employee bonus scheme?

A: While it is unlikely to go down well with staff, scrapping your employee bonus scheme can sometimes be a necessary way to save money and avoid having to consider a redundancy procedure.   

Whether or not you can remove your bonus scheme will depend on a number of factors, and you first need to consider whether the scheme is contractual or discretionary. This can often be determined by reviewing the wording used in employee contracts or in any existing bonus policy.

If these documents make no reference to an employee bonus scheme, or if they explicitly state that you reserve the right to withhold bonuses, then the scheme is likely to be discretionary.

This means you are not legally required to pay staff and should be able to proceed without fear of tribunal proceedings.

Having said this, staff may be able to argue that the bonus has become an implied contractual term under certain circumstances, which would make withholding payment significantly more difficult.

For it to qualify as an implied term, employees will need to show that bonus payments have been made regularly over a number of years and therefore have come to be expected.

Proceeding to remove the bonus scheme in these circumstances could lead to claims for breach of contract, however, this will depend on the specific facts of the case.

Alternatively, if the bonus scheme is a contractual entitlement you have less freedom to remove it immediately and should first enter into a consultation period with staff with the intention of amending their contractual terms.

During this consultation you should explain to staff exactly why you wish to remove the bonus scheme in the hope they agree to this change.

Perhaps understandably, getting employees to agree to give up their contractual bonus may be difficult and in these situations you may be faced with no option but to enforce the change by dismissing employees on their current terms and re-engaging them with the change enacted.

If you choose to proceed in this way, then you must be able to present a valid business reason for removing the bonus to avoid claims of unfair dismissal.

Once existing employee contracts have been successfully amended you should ensure continuity by reflecting this change in workplace policies and providing future new starters with updated contracts that outline your new stance on employee bonuses.

Although staff may argue the contrary, it is possible to make changes to an existing scheme even when it is included in contracts of employment.

However, when doing so it is imperative that you proceed with caution and follow the correct procedure at all times.

Peter Done is managing director of law firm Peninsula