A revised, final version of the non-statutory guidance by Acas and the Government Equalities Office was published on 3 April 2017, available here. Although the GEO had indicated that no substantive changes were expected to the original draft published a few days before formal approval of the final regulations, in fact there are a few significant changes helpfully addressing some of the grey areas highlighted by commentators. Employers currently preparing for the first data capture covering the pay reference period including 5 April 2017 should review the guidance urgently.
It is tempting, when seeing the words ‘any bonus payment shall be at the company's absolute discretion’ in an employment contract to think that the employer's discretion will in fact be 'absolute'. As usual though, when the law is involved, things are not quite so straightforward.
When an employer exercises a discretion set out in a contract to determine a bonus, they must:
- act rationally – ie, an employer must not determine a bonus that no reasonable employer would have determined in all of the circumstances; and
- not take into account irrelevant factors or fail to take into account relevant factors in determining the bonus.
The Government has published its long-awaited final form draft regulations on gender pay gap reporting. Subject to Parliamentary approval, the new requirements are due to apply to private sector employers with 250 or more employees from 6 April 2017. A draft Explanatory Memorandum states that supporting non-statutory guidance will be published after Parliament has approved the regulations.
Key changes include:
- The Information Commissioner's Office has issued interim guidance following the publication of the proposed EU-US Privacy Shield framework to facilitate the transfer of personal data from the EU to the US (see here). The ICO helpfully confirms that it is not rushing to use its enforcement powers and advises businesses not to rush to change whilst the process to assess the Shield is ongoing. Businesses should take stock and may wish to rely on their own adequacy assessments – see the guidance for further detail.
- EHRC guidance on avoiding unlawful discrimination in advertisements.
- Business Disability Forum research and recommendations for employers on autism in the workplace.
- HSF tax disputes ebulletin: Supreme Court applies purposive construction to defeat bank bonus tax avoidance schemes.
Recent decisions of the Australian Courts have highlighted the limits, in the form of an implied term, on an employer’s contractual discretion to award bonus payments.
Last year's Supreme Court ruling (see here) that employers may be required to consider all relevant factors and discount irrelevant ones (the public law concept of "Wednesbury unreasonableness") when reaching factual decisions (Braganza) opened up the possibility that this duty might apply to other employer decisions, such as whether an employee is a 'good leaver' or some types of bonus decision. This argument was attempted in the recent case of Patural v DB Services (UK) Ltd, where a banker sought to attack an employer's decision to award him a smaller bonus than two colleagues who were entitled to a guaranteed bonus.
The High Court of Singapore has confirmed the proposition that discretionary bonuses are exactly that: discretionary. Employees do not have a contractual entitlement to a discretionary bonus. Continue reading
Yesterday afternoon it was announced that the UK Government has launched a legal challenge in the Court of Justice of the European Union against the cap on variable remuneration introduced by the new capital requirements directive ("CRD IV").
Although this may ultimately result in the cap being overturned, the UK may nonetheless have to implement the provisions in the interim, and in which case, those affected will be hoping that the decision of the Court of Justice is reached before the 2015 bonus round when the bonus cap is likely to bite.
The announcement makes clear that the Government believes that real improvements in the alignment of bankers’ pay with risk and performance have already been made, and that the proposed bonus cap would undo this good work by forcing banks to increase salaries and therefore fixed costs. These views have been widely expressed across the UK financial services sector, and it will be welcome news that the Government has now acted on these concerns.
The challenge focuses on the legal basis for the bonus cap, but also highlights other issues including a challenge to the extra-territorial effect of the cap, the lack of a proper consultation and impact assessment, and that the powers delegated to the European Banking Authority go beyond developing technical standards to formulating policy. Continue reading
The Court of Appeal has dismissed an appeal from the High Court's ruling that Dresdner Kleinwort had contractually committed to a minimum bonus pool from which it could not renege, despite deteriorating financial circumstances. The Court of Appeal endorsed all of the High Court's reasoning, save that it construed the clause setting out how to vary employment terms even more strictly against the bank.
The ruling highlights the need to ensure that any oral assurances given to staff are carefully considered and that contractual commitments are not inadvertently created. The fact that an oral promise relates to the size of a bonus pool, rather than to an individual employee's award, will not itself stop the promise being contractually binding.
The European Commission intends to replace the existing Capital Requirements Directive (2006/48/EC and 2006/49/EC) (CRD) with a regulation and a directive: the proposed Capital Requirements Regulation (CRR) and the proposed CRD IV Directive. The detailed EU report on the proposal dated 2 March 2013 (and subsequent press release) set out the principles on the issue of a capped ratio on the fixed and variable component of remuneration and shareholder involvement. The proposal and discussion on a possible challenge to the Directive have attracted a good deal of attention from the banking community and media alike.