In retrospect Howard should have taken the bonus instead of asking for his own cubicle.

I’m often told by hopeful clients that they can’t be obliged to pay or do something, because there is no contract in place.  What they mean is that there is nothing in writing, but that doesn’t mean that there isn’t a contract which the parties can be held to, so long as we can work out what the terms of that contract are!

And then again, I have hopeful clients telling me that something must be enforceable, because it IS in a contract.  Whilst this is more likely to be true, it still isn’t guaranteed.  If we enter into a contract under which I agree to kill someone for you, and the person doesn’t die, we’re hardly going to be going to court to argue over whether I’m breach and whether you still have to pay me.  Simply because it’s in writing, doesn’t mean it’s enforceable.

In between that, we have the things that are in writing that were enforceable at the time they were written, but things change.

Take, for example, an employment contract that says that the payment of a bonus is completely at the discretion of the directors.  If the bonus is paid in the first year, it’s almost certain that the bonus isn’t automatically payable in the second year.  However, if every year the bonus is paid, without question or even much in the way of thought or consultation, calculated on the same or similar basis, then after, say, 10 years then arguably the contract is varied and the bonus becomes a contractual obligation and not discretionary.

You don’t need to take my word for it, as courts have made decisions of this type in previous cases.

So what can you do?

Well obviously you don’t have to give your staff a bonus at all, but probably the best answer is to do proper reviews with all of your team and review your contracts regularly.  Don’t just go through the motions and take things in contracts (or implied into working practices) for granted.  If the contract says it’s discretionary, then apply a discretion to your decisions and don’t just pay out automatically.

Kleyman & Co Solicitors.  The full services law firm.  Having us on your side is always a bonus.