Case Law: The meaning of 'discretionary' benefits

Employers must take care what they describe as a discretionary arrangement around benefits, as they could be vulnerable to legal action if staff challenge any changes to the perk.

This has been demonstrated in the case of Small and others vs Boots the Company and Boots UK, in which warehouse staff at Boots have continued to pursue bonus entitlements under a claim of unlawful deduction of wages at the Employment Appeal Tribunal.

The claimants had been receiving performance-related bonuses from Boots until Unipart bought the warehouse in which they were employed. By 2004, all staff had been transferred to Unipart under Transfer of Undertakings (Protection of Employment) (Tupe) regulations. While employed by Unipart, they did not receive a bonus for 2005, 2006 and 2007.

The claimants were re-employed by Boots after the retailer bought back the warehouse from Unipart in April 2007. The appeal focused on whether staff were entitled to a bonus under Boots' scheme for 2006/7 despite the fact the retailer had consistently described the benefits as discretionary in several documents, including those relating to its reward policies.

Although the appeal case has been sent back for a rehearing, the judge pointed out that just because an employer describes a scheme as discretionary, it does not mean it can offer the benefit if and when it wants to. For example, she said the term "discretionary" might apply only to certain parts of the bonus scheme, including eligibility, the amount rewarded and the way payments are divvied up.

Simon Jeffreys, a partner at CMS Cameron McKenna, said: "The real significance is that the courts have been increasingly involved in reviewing whether or not an employer's bonus scheme is discretionary."

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