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Contract of Employment

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Can a contract that allows for a discretionary bonus be varied so the employee becomes contractually entitled to that bonus?

Yes, concluded the EAT in Bluestones Medical Recruitment Ltd v Swinnerton. But a claim on that basis cannot succeed unless the tribunal reaches clear findings on how that variation occurred.

Mr Swinnerton worked for Bluestones in a number of jobs before becoming General Manager. In previous roles, his contract allowed for discretionary bonuses. Once he became GM it was intended he be paid a monthly bonus, based on the company's profits. It was also expected he would become a shareholder. The bonus payments were made as loans, which he would later repay from his dividends.

Before becoming a shareholder, Mr Swinnerton was suspended and then dismissed. During his suspension, Bluestones stopped paying the bonuses. The tribunal concluded this was an unlawful deduction of wages.

The EAT found the tribunal hadn't adequately identified the legal mechanism through which the contract was changed or what the new contract required. This failure also meant there was no proper conclusion on whether the payments should be classified as loans and therefore not considered deductions from wages by s27(2)(a) of the Employment Rights Act. The case was therefore remitted to a fresh tribunal.

Thanks to Michael Reed, Employment Legal Officer at the Free Representation Unit, for preparing this case summary.