Discretionary Bonuses: A Word of Caution

Originally published January 2005

Bonuses are an important part of the remuneration of many employees, particularly in the financial services sector. However, even if the bonus is ‘discretionary’, an employer needs to be cautious when exercising that discretion as the recent case of Horkulak v Cantor Fitzgerald show.

Mr Horkulak’s fixed term contract provided for an annual discretionary bonus, the amount of which was ultimately determined by the company. He resigned two years before the end of the term because of his employer’s conduct and succeeded in his claim for breach of contract. However there was a dispute over the level of damages due to him. Should those damages include compensation for the loss of the discretionary bonus, which he would have expected to be paid if he had stayed in employment until the end of the fixed term?