Small and ors v Boots concerned employees who had been TUPE-transferred over from Boots (which had a discretionary bonus scheme) to Unipart (which did not) and who had then been transferred back to Boots three years later.

The EAT had first to consider whether the fact that a bonus scheme was expressed to be 'discretionary' was determinative of the issue as to whether it was a contractual entitlement or not. The EAT held that it was not.

It also decided that the employment tribunal in this case had failed to look at the employer's 'course of dealings' over the years in relation to payment of bonus, to decide whether it was contractual or not. These issues were remitted to the tribunal to reconsider.

If contractual, the obligation to pay such bonuses might have passed automatically from Boots to Unipart on the first TUPE transfer.

However, the EAT confirmed that, if it transpired that the obligation to pay bonus had not transferred to Unipart under TUPE, the employees had not been entitled to bonus while working for Unipart. Therefore they could not rely on TUPE to claim bonus from Boots on their return to that employer until they had clocked up enough relevant service with Boots to be entitled to it again.

Points to note –

  • Particularly when economic times are hard, employers should note that they must take care over the wording of any bonus scheme documentation. First, they should consider whether the wording makes it a contractual obligation on them to pay bonus.
  • Merely labelling the right to bonus as ‘discretionary’ may not allow them to simply not pay bonus at all. The wording must make it clear what precisely it is that the employer has discretion over – to pay bonus at all? The method of calculation of the bonus? The threshold which may trigger entitlement to bonus in any one year? We can help you draft appropriate wording.
  • Whatever the documentation says, employees may still have a claim if bonus has, as a matter of fact, been paid consistently and at a consistent rate over a period of years.
  • The issue of whether the right to bonus was a contractual right or not was of particular significance in this case. If it was contractual, the right passed under TUPE. These questions have been remitted for the employment tribunal to decide. However, matters will not stop there. If there was a contractual right AND it was possible for Unipart to apply the terms of the Boots bonus scheme, then the tribunal could deal with the claim as an unlawful deduction from wages. However, if the Boots scheme was impossible for Unipart to apply, then the employees would only be entitled under TUPE to a ‘substantially equivalent scheme’ and would have to bring their claim in the County Court as a breach of contract claim for unquantified bonus.