THE HIGH COURT
Payment of Wages Act 1991 – Withdrawal of bonuses – Unlawful deduction
The appellants were ten employees of the respondent. They had claimed an entitlement to a Winter/Summer bonus under their respective contracts of employment. The respondent discontinued the bonus scheme in January 2012 but later indicated that this would take effect only from April 2012. The appellants claimed that the Summer bonus, payable in 2012, should nevertheless have been paid since it was earned and/or accrued during the previous August to January. It was also claimed that the withdrawal of the bonus was in itself unlawful and in breach of the provisions of the Payment of Wages Act, 1991
A second element of the claim concerned the withdrawal of a “zone allowance” payable to staff at three Dublin outlets which was also said to be a breach of the appellants’ entitlements under the 1991 Act.
The EAT had determined that the letter informing the appellants of the withdrawal of the bonus payments was not a communication seeking the amendment of contract. It merely constituted a variation of the terms and conditions of employment as expressly permitted in the appellants’ contracts. The Tribunal held that the contracts were all consistent in expressly referring to bonus payments as discretionary and subject to withdrawal at any time.
In respect of the zone allowances the Tribunal determined that these did not constitute wages for the purposes of the 1991 and, further, that the withdrawal of the allowances constituted a reduction, albeit a 100% reduction, rather than a deduction under the terms of the act.
McDermott J. held that the Tribunal had erred in ruling that the use of the word “discretionary” in the contracts gave the respondent an absolute right to withdraw the bonuses at any time. The court held that use of the word “discretionary” is not always determinative of whether a contractual entitlement arises under a bonus scheme. On the facts of this case, the court ruled that entitlement to the bonuses had already been earned prior to their withdrawal in April 2012 and that the bonuses were ‘wages’ for the purposes of section 5 of the 1991 Act.
On the subject of the zone allowance, the court held that the Tribunal had been correct in finding the allowance to be an ‘expense’ rather than ‘wages’ and thus not subject to the protections of the 1991 Act. The court did state, obiter, that, contrary to the ruling of the EAT, if the allowance had been determined to be ‘wages’ its withdrawal would have constituted an illegal deduction and not a ‘reduction’ allowable by law.