Employees who feel aggrieved about the amount they receive as a discretionary benefit (such as a bonus or an award of shares) may consider instituting legal proceedings against their employer. If they do so, there are two possible forums for such a claim: the Employment Tribunal or the County Court.
Tribunal proceedings are quicker and cheaper than County Court or High Court proceedings, where the loser is also at risk of paying the winner's costs. But Tribunals have jurisdiction only over certain specified statutory claims and claims for breach of contract up to £25,000 (which may only be brought there if they arise or are outstanding upon termination of employment).
The Court of Appeal has now clearly stated that employees cannot use an "unlawful deduction from wages" claim in the Employment Tribunal to seek payment of a discretionary benefit, such as a bonus or an award of share options, unless a set figure has been calculated or is calculable.
The scope of the unlawful deductions provisions of the Employment Rights Act 1996 has previously been unclear because the definition of "wages" expressly includes "any bonus....or other emolument referable to his employment, whether payable under his contract or otherwise."
What were the facts in the case?
The employees in this case claimed that they should have received somewhere between 4% and 5% of salary each year under an incentive scheme operated by their employer, Coors Brewers.
Following a year in which no award was made, they brought claims in the Employment Tribunal under the unlawful deduction from wages provisions. No action was commenced in the County Court. At first instance, the Tribunal upheld their claims and proceeded to carry out an assessment of the amount of the award which should be made. This was ultimately determined to be 4%.
Coors appealed on the basis that legislation does not permit a Tribunal to carry out this type of assessment in cases where the employee seeks to rely on the unlawful deductions from wages provisions. Rather, a claim can only succeed under those provisions if the employee is able to identify a legal obligation on the part of the employer to pay a specific sum.
These claims, it argued, were not true claims for unlawful deductions from wages because they required an assessment of the damages. They were instead properly characterised as claims for breach of contract, which should therefore have been brought in the County Court.
What did the court decide?
The Court upheld Coors' appeal.
The basis of an unlawful deductions from wages claim should be that the employee is owed a specific sum of money by way of wages which he asserts has not been paid to him. That was not the case here.
Given the need for an assessment in this case, the Court held that the claims fell outside the scope of the unlawful deductions from wages provisions. If the employees sought a remedy, they should instead have brought claims for breach of contract in the County Court. The employees' claims were therefore dismissed.
What does this mean for employers?
This case is particularly helpful for employers in situations where employees receive a disappointing bonus figure and wish to commence proceedings in which they assert that they should have received some larger sum.
Employees will not be able to bring such claims in the Employment Tribunal asserting unlawful deduction from wages unless they can bring evidence to establish a right to receive a particular amount of money. It will not be sufficient for them simply to claim that they should have received more and ask the Tribunal to determine how much this should be.
From a procedural perspective, claims in the County Court and the High Court are more formal and, as noted above, would-be-litigants are vulnerable in relation to costs. By contrast, employees do not open themselves up to the same costs exposure if they litigate in the Employment Tribunal. They may therefore think twice before they commence proceedings against their employer in the County or High Court.