Discretions and bonus schemes: Can a discretion ever be absolute?

Employment law practitioners are often faced with clients seeking advice about the drafting of bonus schemes and the possibility of successfully bringing legal proceedings for unpaid bonuses.

The first question employment lawyers must invariably ask is whether the bonus scheme provides guaranteed bonuses, or whether they are discretionary in nature. It had long been thought that if a bonus was discretionary in nature, an employer had no contractual obligation to pay the bonus.

This was as a result of the fundamental legal principle confirmed in Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 that damages are not recoverable by an employee in respect of additional benefits that the contract did not oblige the employer to confer even though the employee might reasonably have expected the employer to bestow benefits on him in due course (Macken, O'Grady, Sappideen and Warburton, Law of Employment, 4th ed, Lawbook Co, 1997, p 303).