1. Introduction
Discretionary bonuses occupy a contested space in Irish employment law. A bonus that is described as discretionary in the contract may nonetheless become “properly payable” under Section 5 of the Payment of Wages Act 1991 if the employer has fettered its discretion through consistent practice or contractual representation.
In Vithaldas v UCC Academy DAC the WRC considered whether a non-payment of a bonus constituted an unlawful deduction. The adjudication officer applied the framework laid down by the Supreme Court in Marek Balans v Tesco Ireland Limited [2020] IESC 71 and clarified the test for when a discretionary bonus becomes legally enforceable.
2. Legislation and Case Law
Section 5(1) of the Payment of Wages Act 1991 prohibits deductions from wages unless authorised by statute, by the contract, or by the prior written consent of the employee. Section 5(6) deems a non-payment of wages that are “properly payable” to be a deduction of the full amount.
In Marek Balans v Tesco Ireland Limited [2020] IESC 71, the Supreme Court held that the first task of an adjudicator is to identify what wages were properly payable. Only once that is established can it be determined whether there has been an unlawful deduction.
Section 1 of the Act defines “wages” to include any bonus or commission, holiday or sick pay, and any other emolument referable to the employment, whether payable under the contract or otherwise.
The principle that a discretionary bonus may become contractually enforceable through consistent practice was confirmed in Cleary v B&Q Ireland Limited [2016] IEHC 119, where the High Court found that an established custom and practice can create a contractual entitlement.
3. Decision
The adjudication officer in Vithaldas examined the contractual provisions and the employer’s bonus history. Where the employer had consistently paid bonuses linked to objective performance measures, the bonus was held to be “properly payable” notwithstanding the discretionary label.
Applying the Balans framework, the adjudicator first identified the amount that was properly payable, then assessed whether the non-payment amounted to an unlawful deduction. Compensation was awarded for the unpaid sum.
The decision reinforces that the label “discretionary” in a contract is not determinative. The test is whether the discretion has been genuinely exercised on rational grounds or whether the employer’s practice has fettered the discretion.
4. Takeaway
Employers operating discretionary bonus schemes should document the rationale for each bonus decision and apply consistent objective criteria. Where the employer departs from past practice, the reasons should be recorded contemporaneously.
Employees seeking to recover an unpaid bonus should preserve evidence of the bonus scheme, prior payments, performance metrics and any communications indicating that the bonus was due. The six-month cognisable period under Section 41 of the Workplace Relations Act 2015 should be observed.
5. Further information
This article was prepared for informational purposes only. For further advice, please email enquiries@crushell.ie or contact the offices of Crushell & Co Solicitors.
6. About Crushell & Co
Crushell & Co is a specialist law firm focused on protecting and advancing the rights of employees in Ireland. We offer a nationwide service, advising individuals on a wide range of legal and regulatory issues arising at work, including employment law, employment immigration and workplace accidents and injuries.
We help employees understand their position and options by translating complex legal issues into clear, practical advice. Our approach is tailored to each client, ensuring that our strategy is aligned with their personal and professional circumstances.
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