In Chandrashekarappa v Wipro Ltd the Employment Appeal Tribunal considered whether an employee was entitled to full payment of a promised bonus in circumstances where the employer had sought to change the terms of the scheme after he had met the relevant criteria.
What happened in this case?
The Claimant worked for the Respondent, Wipro Ltd (a large IT outsourcing organisation), as a Practitioner Sales Hunter Manager. Since 2019, the Claimant had been working on a valuable deal with the John Lewis Partnership (a new customer). This was signed on 26 June 2020 and was considered to be a great success for the Respondent.
Employees at the Respondent were entitled to various sales incentive arrangements set out in ‘Variable Pay Plans’ (VPPs), which were presented to staff each financial year and could vary between years. Each VPP would contain ‘Sales Incentive Policies’ (SIPs) which would vary between occupations and individuals, and individual SIPs would be sent to staff members to be accepted by them.
For the financial year running April 2020 to March 2021, the Claimant claimed that his line manager, Mr Garg, told him prior to the presentation of the VPP that there was to be a new ‘kitty bonus’ available to individuals (including the Claimant). Mr Garg reportedly said that if he was successful in winning the John Lewis Partnership business, he would receive this bonus, and this would make the Claimant one of the highest-paid salespeople globally. The Tribunal later noted that this was substantially confirmed by witness evidence.
At a presentation on the year’s VPP in March 2020, the ‘kitty bonus’ did not form a core part of the presentation but was referenced in a footnote as follows:
“A kitty of up to 1% of new logo invoicing against first 12 months can be paid to Practitioner Sales Hunter/Hunter manager contributing to deal win based on SL head approval. Applicable to DOP and CIS role holders.”
The bonus was not referred to in the section of the VPP that dealt with discretionary bonuses. The presentation contained a disclaimer that it was not a substitute for any policy, and that any final policy would override it in case of a conflict.
Any further terms on which the ‘kitty bonus’ would be paid were not documented until the SIP was reissued for the second half of the year. This was a new approach, as the Respondent’s SIPs had otherwise applied for a full financial year, and the move towards splitting financial years had not been anticipated in the original SIP for the year. The Respondent’s explanation to staff was that this reflected the challenging business climate due to COVID-19 and allowed for revision of targets. One of the changes introduced was that the cap on commission overall had changed from $300,000 for the whole year to $150,000 for each half year.
A week after the John Lewis Partnership deal was signed, Mr Garg wrote to a senior colleague (Mr Desai) proposing the Claimant for a “1% commission for the JLP deal” and referring directly to the terms of the ‘kitty bonus’ as set out in the presentation. This was approved by Mr Desai and copied to HR. In later correspondence, Mr Desai noted that he could only send a congratulatory email to the Claimant (and make the payment) once it was approved by more senior management, and HR confirmed they were obtaining details for the payment to “set clear expectations”.
In subsequent discussion, another member of HR (responsible for compensation and benefits) shared an email indicating that the ‘kitty bonus’ was for 1% of invoiced revenue as a discretionary reward, paid out at the end of the year subject to approval from the Global Head, and that it was subject to a $150,000 cap. Further discussion followed involving Mr Garg, Mr Desai and others, during which it was raised that no cap had been mentioned in the communications about this bonus and that employees would “feel short changed”. It was also the first time that approval from the Global Head had been mentioned as being necessary. There was suggestion of lifting the cap to $300,000 for the Claimant, as well as awarding him a separate ‘large deal bonus’ to help make up for any shortfall.
On 20 October 2020, draft figures for the calculation had been sent to the Claimant which did not indicate any cap applying. A few days later, he was able to access the revised SIP for the first time, which mentioned the $150,000 cap and Global Head approval being applied. Later, on 15 December 2020, the Claimant was informed that he would receive 1% commission for the John Lewis Partnership deal but with the cap applied. He had also received separate confirmation that he would receive $41,000 as a deal bonus.
The Claimant did not raise any complaint until July 2021, the ‘kitty bonus’ having been paid to him in February 2021; this was much earlier than expected, given that revenue from the transaction would not be apparent until December 2021. His complaint was raised as part of a discussion on incentives generally, as the Claimant was concerned about his treatment in relation to variable pay compared to other staff, as well as disputing the new approach of splitting SIPs into half-years rather than full years. By December 2021, when he had originally expected to receive the full ‘kitty bonus’, he believed that the full amount had not been paid and he therefore issued proceedings in the Employment Tribunal.
The Claimant continued to work for the Respondent, later submitting a grievance relating to not being invited to an important offsite meeting. He claimed that he was being sidelined due to his Tribunal claim. He later resigned in May 2022, citing that the workplace had become untenable for him due to ongoing retaliation for his claim. He lodged a second Tribunal claim on 27 September 2022.
It was later documented in the case that if the ‘kitty bonus’ had been paid in full rather than being subjected to a cap, it was worth £516,082 instead of the $150,000 that the Claimant had received.
Employment Tribunal Claims
The Claimant brought claims for unlawful deduction from wages, race discrimination, victimisation, constructive unfair dismissal, and wrongful dismissal. One of the claims relating to unlawful deduction from wages related to the imposition of the cap on the ‘kitty bonus’.
In this regard, the Tribunal concluded that:
- In order to proceed as a claim for unlawful deductions under Section 13 Employment Rights Act 1996 (ERA 1996), the full amount of the ‘kitty bonus’ needed to be wages that were properly payable to the Claimant. The fundamental question was therefore whether he had a legal entitlement to payment of the ‘kitty bonus’ in an amount that was higher than what he actually received.
- The entitlement to a quantified or quantifiable amount had not arisen until it was formally communicated to the Claimant that the decision had been made, as further approval was needed beyond Mr Desai’s authorisation. It had therefore crystallised on 15 December 2020, and at that point the payment was communicated as being subject to the cap.
- This meant that nothing above the cap was ‘properly payable’, and failure to pay the uncapped ‘kitty bonus’ was not an unlawful deduction from wages.
The Tribunal dismissed the other claims, finding that the allegations in relation to other incentive payments were out of time, the burden of proof for race discrimination had not been shifted in the circumstances, the allegations of victimisation were not substantiated, and he was not found to have resigned in response to a repudiatory breach of contract.
What was decided?
The Claimant appealed the decision on three grounds, each of which overlapped to a significant extent (as noted by the EAT).
The essential nature of all three was that the Tribunal had incorrectly relied upon approval criteria that had only occurred to the Respondent (and been communicated to him) after the announcement of the bonus parameters and after Mr Desai had communicated his approval of the bonus within those parameters. His case was that after that approval had been issued on 1 July 2020, there was a legal entitlement to a quantifiable sum (being 1% of the revenue invoiced), and the Respondent no longer had discretion to introduce any additional conditions such as a cap or additional level of approval.
The EAT characterised the essential question as therefore being as follows (emphasis added):
“whether, having informed the Claimant on 1 July 2020 that he was to receive the full 1% of the JLP revenues for the year, the Respondent was entitled, prior to the point at which the payment was subsequently due to be made (i.e.. after the relevant JLP figures had been determined) to change the basis of the calculation from that which had been communicated in July 2020. In other words, although the level of the payment could not on any view be determined prior to December 2021 (when the JLP were first known), was the Respondent able to apply conditions to the bonus arrangements after 1 July 2020 and before December 2021?”
The EAT concluded that:
- There was no entitlement to any specific quantified sum any earlier than December 2020, when the capped bonus was communicated to Mr Chandrashekarappa, or indeed prior to the actual revenues being known later in December 2021.
- However, at the point at which Mr Desai had approved Mr Garg’s recommendation on 1 July 2020, the terms under which approval was being sought were clear and Mr Desai’s approval was entirely consistent with the parameters at that time. It was at this point that the Claimant had become entitled to the bonus, a sum equalling 1% of the revenues from the John Lewis Partnership transaction. This would be payable only once quantification could be made (i.e. once revenues were known), which would be in December 2021.
- The EAT found that the Respondent had not been entitled, when making that quantification at a later date, to move the goal posts from where they had been on 1 July 2020 at the time of Mr Desai’s approval of the full 1% ‘kitty bonus’. They could not revisit the payment level and belatedly introduce a cap which had not been communicated when introducing and explaining the policy. As a result, the declaration of the bonus and quantification made in December 2020 / December 2021 had been one that the Respondent was not entitled to make.
They further determined that the question of the Claimant’s entitlement was a simple ‘yes or no’ matter, which did not require further factual analysis. The EAT therefore declined to remit the matter back to the Employment Tribunal, and instead substituted their own finding that “the Claimant was entitled to 1% of the JLP year one revenue less the sterling equivalent of $150,000 that was paid to him”.
What does this mean for employers?
This decision highlights an important consideration for employers – when does an employee’s entitlement to their bonus actually crystallise?
Whilst each case will always turn on its own facts, this decision makes clear that a discretionary bonus can become a legal entitlement much earlier than the date on which the amount can be quantified. If criteria are communicated to the employee and subsequently met, it unlikely to be open to the employer to retrospectively add further conditions.
This is therefore a helpful word of caution for employers that, before announcing any bonus or other incentive schemes, they should ensure that communications contain (or refer to) all applicable terms and conditions, and that they are comfortable that the proposals are commercially viable for the period covered by the incentive plan.
BDBF is a leading employment law firm based at Bank in the City of London. If you would like to discuss any issues relating to the content of this article, please contact Rose Lim (RoseLim@bdbf.co.uk), Amanda Steadman (AmandaSteadman@bdbf.co.uk) or your usual BDBF contact.
