Discretionary Bonus? Court of Appeal releases Metroglass judgment

The Court of Appeal has today released its widely anticipated judgment in the Metropolitan Glass & Glazing Limited v Labour Inspector case. It overturned the Employment Court’s decision and found that payments made under the Metroglass bonus scheme did not need to be included in gross earnings under the Holidays Act (section 14).

The issue arose from a dispute between Metroglass and the Labour Inspector as to whether payments under Metroglass’s bonus scheme, described to be at the Board’s absolute discretion, formed a part of employees’ gross earnings for the purposes of calculating holiday pay. The scheme described the payments as discretionary and confirmed they did not need to be made even if bonus targets were met.

The Employment Court concluded the parties had intended the scheme to have contractual force and was put in place to incentivise employees to meet key deliverable targets. On that basis, the payments had to be included in gross earnings.

On appeal, the Court of Appeal focused on the definition of gross earnings in section 14 of the Holidays Act which states that gross earnings means all payments that the employer is required to pay and excludes any payments that the employer is not bound to pay including any discretionary payments.

The Court of Appeal found that section 14 did not provide for all employment related remuneration for the job to be included in gross earnings and that the key element of the definition of gross earnings is that the payment at issue must be one which the employer is contractually bound to pay. This would include being bound to pay where conditions or targets are met by the employee.

In this case, Metroglass did not just label the scheme discretionary but included an express term that even if all the conditions were met, it retained the discretion not to make any payment. Therefore, the Court of Appeal found that the payments, being “neither guaranteed nor conditional”, retained the character of a discretionary payment for the purposes of the Holidays Act.

However, the Court cautioned that employers would be under an obligation to exercise their discretion fairly and reasonably and a failure to do so could be grounds for a personal grievance.

This decision is significant for all employers who operate bonus schemes, particularly where the employer relies on the “discretionary payments” exception under section 14 of the Holidays Act in not including those payments in holiday pay calculations. If so, employers should review the terms and conditions of their bonus schemes to ensure that any payments are expressed to be truly discretionary including that those payments may be withheld even if goals or targets are met by the employee.

To download the full judgement, click here.

Source: Kiely Thompson Caisley Barristers & Solicitors