If a paltry bonus is really a method of getting rid of you, you may be able to claim constructive dismissal, says lawyer Elaine Aarons.
If you find your bonus has been drastically reduced (or even eliminated) this year, you may feel compelled to take action. Apart from suing for your bonus to be topped up (always a possibility if, when looked at objectively, it is clear that you were significantly underpaid), you may think of claiming constructive dismissal.
Essentially, constructive dismissal involves an employer fundamentally breaching its contract with an employee by treating the individual badly. This mis-treatment forces the employee to resign. Effectively, the employment has therefore ended unfairly and the employee will have the same rights as an individual who was unfairly dismissed without notice.
Standard grounds for claiming constructive dismissal include executives not being given enough work when work is available and a substantial reduction of duties.
In the case of bonus claims, if a senior investment banker is deprived of income to which he or she is entitled, there may be scope for claiming constructive dismissal.
However, there is often uncertainty around the extent to which bonuses can be considered part of 'income entitlement'. A low bonus might be grounds for constructive dismissal if:
· there is inconsistency in the application of bonuses between employees. The most obvious example of this is if a colleague at the same level has demonstrably performed similarly or even worse than the individual in question, and yet receives a higher bonus.
· there is a clear formula for bonus allocation which has not been used.
· the bonus awarded is so irrationally low that it gives the impression the employer is deliberately marginalising the employee or even trying to force him/her out.
Recent cases have suggested that if an employer pays a bonus that can be considered 'reasonable', it makes a constructive dismissal claim harder.
The most obvious reason for claiming constructive dismissal following a disappointing bonus is the potentially high financial compensation on offer (although this will vary depending on the circumstances).
In standard constructive dismissal cases, the awards for City high fliers can be disappointing as they are capped at 60.6k. However, the potential payout becomes a lot higher if your constructive dismissal case falls within the uncapped categories - discrimination and whistleblowing claims being classic examples of this.
In these instances, a successful claim can result in the individual being awarded their fair bonus, as well as the earnings he or she would have received if they had not been wrongly treated. It can also result in the employee being freed from post-employment restrictions on joining a competitor.
What is key is that a constructive dismissal claim, or the threat of one, can allow an employee to negotiate the strongest possible exit package from their employer when staying no longer seems like an option.
However, keep in mind that resigning and subsequently attempting to prove constructive dismissal is an expensive option, with no guarantee of success. If you are considering this route, you must carefully weigh up the legal arguments. The length of time it will take you to find new employment elsewhere is also critical to any compensation expectations.
Elaine Aarons is a partner in the employment team at international law firm Withers LLP.