The facts
In Chandrashekarappa v Wipro Ltd, the claimant worked for Wipro in a sales role. In March 2020, the company introduced a new bonus scheme. During a presentation, employees were told that eligible sales staff could receive up to 1% of invoiced revenue generated from winning new business during the first 12 months of a client relationship, subject to approval from a sector lead.
The claimant played a significant role in securing a major contract. Shortly after the deal was agreed, his sector lead approved the full 1% bonus, and this was communicated to the claimant.
However, several weeks later, the requirement for a further level of approval and a cap of $150,000 were applied to the bonus scheme. Internal correspondence showed that some managers questioned whether such a cap existed and noted that, if it did, it should have been communicated from the outset.
Ultimately, the claimant received a bonus capped at $150,000. Had the full 1% formula been applied, the payment would have been over £500,000. He brought an employment tribunal (“ET”) claim for unlawful deduction from wages.
The legal issues
The key legal question for the ET was whether the claimant had acquired a legal entitlement to the bonus once the sector lead approved the payment under the terms originally communicated.
The employment tribunal’s decision
The ET rejected the claimant’s unlawful deductions claim.
It concluded that the claimant’s entitlement had not crystallised when the sector lead gave his initial approval. In the Tribunal’s view, no legally enforceable entitlement arose until the employer formally communicated the amount of bonus that would be paid and by which time the need for further approvals and the cap had been communicated to the claimant. The claimant appealed.
The employment appeal tribunal’s decision
The EAT allowed the appeal.
The EAT found that the March 2020 presentation set out the relevant conditions for the bonus. Those conditions required approval from the sector lead. Once the claimant secured the contract and the sector lead approved that he receives the full 1% bonus, the discretion built into the scheme had been exercised in the claimant’s favour.
At that point, the claimant had become entitled to a payment calculated by reference to 1% of the client revenues generated during the first year of the contract.
The EAT held that Wipro was not entitled to “move the goalposts” by later introducing additional approval requirements or imposing a cap that had not been part of the original terms. The evidence showed that neither the cap nor any higher approval requirement had been communicated when the scheme was introduced or before approval was initially granted.
The EAT substituted its own decision, holding that the claimant was entitled to receive 1% of the first year's revenues from the contract, less the amount already paid.
Practical lessons for employers
The case provides an important reminder that, even where a bonus arrangement is described as discretionary, employers cannot retrospectively introduce new conditions or limitations once the employee has satisfied the conditions that were originally communicated and the relevant discretion has been exercised.
The case also highlights the importance of properly documenting the full terms of a bonus scheme. The presentation to Wipro’s employees stated: “This document serves to provide a broad overview... It is not a substitute for the policy document and cannot be considered complete or accurate without reference to the policy document.... the final policy document will overrule this presentation in the event of conflict.” However, that did not stop the bonus becoming due to the claimant as no such document was produced and circulated to the employees in a timely manner. Any caps, approval processes or eligibility conditions should be set out expressly from the outset and communicated to employees before any work to which the bonus relates is undertaken.
