Category: Employment Law

When a discretionary bonus becomes enforceable

Where an employee is promised a discretionary bonus as an incentive, an employer may be held liable for the full figure if the preconditions have been met and the chain of authorisation is fully satisfied. Indeed, a recent ruling by a tribunal has made it clear that employers cannot unilaterally alter the preconditions or quantum of a bonus once the agreed terms have been met and approved.

The contention arose after a global cloud hosting platform introduced a bonus incentive scheme, which, according to the presentation slide deck, offered sales staff a discretionary bonus of "up to 1%" of revenues derived from invoicing any new client over the first twelve months of the contract, subject to the approval of the Sector Lead Head (SLH). Soon after this offer was made, the claimant secured a major contract with a prominent retailer, whereupon the line manager formally emailed the SLH to recommend the full 1% commission. The SLH duly authorised the bonus in a recorded ‘memo’. However, the senior management baulked at the prospective payout of £516,082 and sought to retroactively apply a £150,000 bonus cap. While the initial claim for the unlawful deduction of wages was dismissed on the ground that no legal entitlement had crystallised, this was overturned on appeal, as the objective terms of the bonus scheme had been clearly outlined, met, and approved by the designated authority.

Crucially, once the SLH had authorised the bonus, the claimant's entitlement to 1% of the first year’s revenues had legally materialised, and the employer had no legal right to cap the bonus or insist upon additional management sign-offs. Thus, discretionary bonus schemes do not automatically grant employers unrestricted authority to alter payment terms at their whim, as, once an employer has established a discretionary bonus framework, communicates its specific terms to an employee, and subsequently exercises its discretion to approve the award, a binding legal obligation has been formed. As a consequence of this landmark ruling, employers should review all bonus incentive schemes to ensure that they do not inadvertently create any unanticipated obligations.

Have you reviewed your workers’ employment status?

Businesses should regularly review whether individuals working for them are correctly classified as employees, workers or self-employed. Getting employment status wrong can result in unexpected tax liabilities, penalties and loss of employment rights.

Employment status affects both the rights of the individual and the responsibilities of the business. However, a person’s employment status for employment law purposes may differ from their status for tax purposes, so employers need to consider both.

An employee usually works under an employment contract and has greater employment rights, including protection against unfair dismissal, subject to qualifying conditions, and entitlement to statutory payments.

A self-employed person generally runs their own business, takes responsibility for its success or failure and is responsible for their own tax and National Insurance obligations. However, the label used in a contract is not enough on its own. HMRC and employment tribunals will consider the actual working relationship.

Factors that may indicate employment include regular working hours, supervision and control by the business, the provision of equipment and the inability to send someone else to carry out the work.

Businesses should use HMRC’s employment status checking tool, Check employment status for tax (CEST), where appropriate. The CEST tool gives HMRC’s view of a worker’s employment status, based on the information provided.

All online harassment is unacceptable, in any context

A recent ruling has determined that targeting individuals online, even on a private group chat, can lead to a loss of employment. A Mr. Y was employed by the Royal Mail as a delivery driver with an impeccable, longstanding record of service. This was not to last as, in 2022, a labour dispute orchestrated by his union led to the creation of a messaging group for all union members at his depot.

While Mr. Y held no formal office or role within his union, he remained an active member and his strength of feeling led him to post two highly controversial messages on the group chat. The first was a direct expletive aimed at their employer, albeit one accompanied by an ‘only joking’ emoji. The second, however, constituted a significant escalation, as Mr. Y called out two colleagues who had opted not to participate in the strike, demanding their allegiance and jesting that the failure to join their ranks would result in their ‘cars being blown up’.

Mr. Y subsequently apologised and maintained that he had been joking. However, a trainee manager who had been sent the post considered it genuinely intimidating. This led to a formal internal investigation by the Royal Mail, which found that the posts directly breached their code of corporate conduct and social media policies regarding threatening behaviour toward colleagues, leading to Mr. Y's immediate dismissal for gross misconduct. In response, Mr. Y launched a legal claim, arguing that his dismissal was automatically unfair, as his messages fell within the auspices of protected trade union activities.

The Employment Tribunal rejected his claim, reaffirming the company’s finding of misconduct. Mr. Y then took his case to an Employment Appeal Tribunal. The Appeals Judge, however, upheld the Lower Tribunal’s finding that legal protections for union activities do not extend to abusive or threatening language merely because it takes place within a union-branded forum. The Judge concurred that such profanity did not advance any union aims and that any message intimating violence transcended peaceful and lawful industrial encouragement. Moreover, the Tribunal did not need to decide whether the message was intended as a genuine threat or as a joke, as both would engender an atmosphere of menace that breached any statutory protection.

This ruling sends an unambiguous warning that messaging platforms, including ‘private’ group chats, are not legally insulated spaces. This case draws a clear demarcation between any vigorous advocacy for lawful union action and targeting colleagues with hostile rhetoric. Any attempts to ‘pressure’ coworkers with threats of violence, no matter how they are intimated, carry severe professional risk. For employers, this may signal that their purview extends to any private group chats among their employees, should their attention be drawn to any problematic messages, and not merely internal Emails or messaging forums such as Slack and Teams.

Don’t let discrimination lead to resignation or risk facing career compensation

A recent ruling has cleared the path to uncapped financial compensation following a forced resignation. A longstanding social worker had complaints raised over her work by an interim service manager. The ensuing investigation, however, failed to inform her of the specific allegations, their source, or their scope. This covert enquiry had a profound and detrimental effect on the mental health of the individual, leading to anxiety, depression and sleep disturbances. As a result, she submitted formal grievances that were not satisfactorily resolved before her eventual dismissal.

The social worker successfully pursued a complaint of indirect disability discrimination and constructive unfair dismissal at Tribunal, although she subsequently appealed the assessment of compensation. While the original Tribunal had initially upheld her claims and awarded a total of £153,906, including past loss of earnings, injury to feelings, expenses, a basic award, and £20,000 for pension loss, it made no award for any future loss of earnings.

The Appeal Tribunal forcefully dismissed the Council’s cross-appeal, ruling that any act of workplace discrimination which inflicts an ongoing psychiatric injury that is sufficient in severity to drive an employee to lose their career is fully recoverable under discrimination law. The Appeal Tribunal confirmed that compensation, under Section 124 of the Equality Act 2010, must be assessed based on the principles of tort law, which seek to place the injured party back into the exact financial position they would have enjoyed had the wrong never occurred, ruling that any financial losses resulting from a ‘career crash’ need only stem from the unlawful act itself. Thus, from a legal standpoint, a single act of discrimination inflicted during employment can cause the ultimate loss of a job and career, albeit in this case an indivisible psychiatric injury caused by a surreptitious investigation.

The flawed grievance procedures did not break the chain of causation or remedy the deep psychological damage already inflicted by the discrimination. Moreover, the Judge ruled that the original Tribunal had erred in arbitrarily diminishing the future loss of earnings and failing to properly apply the official Principles for Compensating Pension Loss when calculating her defined benefit pension scheme.

This austere ruling is a clear warning to executives concerning clandestine workplace investigations, as employers can no longer hide behind the pretext that an internal investigation was kept quiet to protect the employee. If a workplace process isolates vulnerable employees, fuels toxic office rumour-mongering, and prevents employees from defending themselves, then it can be legally classified as a traumatising act of discrimination.

The corporate manual, not time and motion studies, defines employment roles

Equal pay claims can grind on for years before resolution. However, the ground has shifted since the Court of Appeal (CoA) took Tesco’s own operating and training manual as the definitive source on employee roles rather than any granular analysis of their activity.

This claim began in 2018 when almost 60,000 Tesco store workers, primarily women, argued that their roles held equal value to those of their male counterparts in higher-paid distribution centre jobs. This pay dispute pivoted unexpectedly when the Tribunal issued its Judgement 1 in July 2023. Instead of parsing thousands of individual instances, it ruled that Tesco’s own weighty corporate manuals were the definitive evidence of role requirements. Tesco fought this argument vigorously, appealing for a rehearing that would have delayed the outcome by a further three years. However, the Tribunal held its ground, issuing a 619-page Judgement 2 in July 2024, appending a further 750 training documents.

The CoA delivered a resounding vindication for the claimants on four of five grounds in relation to Sections 64 and 65 of the Equality Act 2010, which define "relevant types of work" and establish that such work is deemed to be of "equal value" if it demands similar levels of effort, skill, and decision-making. Ultimately, this ruling effectively defines a ‘role’ as what the employer requires the employee to do – roles that are exhaustively detailed within Tesco’s voluminous training manuals.

This ruling is clear and constitutes a significant strategic advantage for litigants in equal pay claims, in effect shifting the body of evidence from invasive, second-by-second monitoring of employees’ daily activities to the blueprints of the company’s own operational handbooks and mandatory training manuals. The devil, it appears, lies in the detail, and these weighty tomes form the very rope by which employers effectively hang themselves. Indeed, such exhaustive detail can be leveraged to demonstrate the true complexity, effort, and skill a prescribed role actually requires.

By validating the use of extant corporate manuals to establish the baseline requirements of a position, the CoA has effectively streamlined the fact-gathering phase of equal pay litigation, and employers can no longer easily escape liability under a ‘Section 69 material factor defence’ by simply downplaying the everyday realities of female-dominated roles if their own written guidance suggests otherwise. So, if an employer demands exhaustive operational perfection on paper, then the law will hold them accountable when structuring employee pay. Employers should take care not to be caught in flagrant self-contradiction by their own documentation.

Preparing for a new employment landscape in 2026/27: Further protections

Annual leave & holiday pay (effective April 2026)

From 6 April, the Employment Rights Act (ERA) 2025 has introduced strict new record-keeping duties, requiring employers to maintain detailed records of annual leave, carried-over holiday, and holiday pay. Employers must keep these records for six years, with failure to do so potentially resulting in severe financial penalties under the newly created Fair Work Agency (FWA). These changes address previous gaps in law regarding record retention, placing a higher administrative burden on businesses to ensure compliance.

Redundancy provisions (April 2026)

The cost of procedural errors during collective redundancies has effectively doubled, as the maximum protective award for failing to properly inform and consult on redundancies involving 20 or more staff has increased from 90 days to 180 days of gross pay. This change places a significant premium on early and transparent consultation with staff and unions to minimise the risk of severe financial penalties.

National Living Wage to increase (April 2026)

As of 1 April 2026, all employers must ensure that their payroll reflects the new statutory rates, including an increase in the National Living Wage (NLW) to £12.71 per hour for those aged 21 and over, £10.85 for 18–20 year olds, and £8.00 per hour for 16–17 year olds and apprentices, while statutory maternity, paternity, and adoption pay have also risen to £194.32 pw.

Guaranteed hours (2027)

Zero-hours and low-hours workers will have the right to request guaranteed hours, compensation for cancelled shifts, and reasonable notice of working schedules. Employers must pay for shifts that are cancelled, moved, or reduced at short notice. Employers will be required to provide reasonable notice when scheduling or changing shifts, although the precise definition of "reasonable" is yet to be determined.

The FWA’s draconian new powers

To ensure these new rights are strictly followed, the government has established the FWA as a single, powerful enforcement body. The FWA has the authority to inspect workplaces (by forceful entry if necessary), audit payroll records for minimum wage and holiday pay compliance, and bring court proceedings against any organisations that fall short of statutory standards. This increased oversight coincides with major trade union reforms that make it significantly easier for unions to gain recognition. The membership threshold for recognition applications has dropped from 10% to just 2%, and the requirement for a 50% turnout in industrial action ballots has been removed. With the introduction of electronic and workplace balloting, the logistical barriers to organising industrial action have effectively been lowered, making it essential for employers to cultivate positive, proactive relations with their workforce.

Preparing for a new employment landscape in 2026: “Day One” Entitlements

Paternity Leave

As of Monday, 6 April 2026, the Employment Rights Act (ERA) 2025 will fundamentally transform the UK workplace by introducing several "Day One" entitlements. Now, paid paternity leave and unpaid parental leave are Day One Rights, granted immediately upon joining a firm. Fathers will also be permitted to take paternity leave, even after finishing a period of shared parental leave, a change that applies to all babies born or placed for adoption. Further, employers should take note of the recent introduction of Bereaved Partner’s Paternity Leave, which offers up to 52 weeks of protected leave for those whose partner dies before a child’s first birthday.

Statutory Sick Pay

The 3-day "waiting period" for Statutory Sick Pay (SSP) has also been removed, and SSP is now a Day One Right. Further, the Lower Earnings Limit (LEL), which previously required employees to earn at least £125 pw to qualify, has been scrapped, and all workers, regardless of their weekly pay, are now eligible for either the standard rate of £123.25 pw or 80% of their average weekly earnings, whichever figure is lower. This change obligates an immediate review of HR payroll systems and sickness policies to factor in a likely increase in both the number of eligible employees and total company expenditure on short-term absences.

Whistleblowing Protections

The whistleblowing laws, which have always been a de facto Day One Right, have been broadened to include complaints of sexual harassment as "protected disclosures explicitly". This means that any worker who reports harassment is shielded by law against detriment or unfair dismissal, requiring employers to update their internal whistleblowing and harassment policies to reflect this heightened level of legal protection.

When is a “self-employed” contractor a de facto employee?

The employment status of a former bricklayer was recently called into question in establishing liability for asbestos exposure. The widow of the late Mr. Eric Alger, who died from mesothelioma, sought access to historical Employer’s Liability

Insurance. Mr. Alger had been contracted to work on a major refurbishment project in 1988. However, because the company had long since been wound up, it had to be restored to the register for this case to be heard. Mr. Alger had worked alongside demolition gangs on the site, although he claimed that he had never been provided with a mask or warned about the risks of asbestos.

The widow’s case was that, while Mr. Alger was self-employed for tax purposes, he was directly engaged by the company to work on the project. The High Court determined that, on the balance of probabilities, Mr. Alger was directly employed by the company and thus fell under the definition of an “employee” for the purposes of Employer’s Liability Insurance, allowing the widow to proceed with the claim for damages. As Mr. Alger had been moved between different areas of the site and performed general labour rather than just specialist bricklaying, the Judge concluded that he was effectively being managed directly by the main contractor and was effectively an employee.

While Mr. Alger was “self-employed” in the eyes of HMRC, if workers provide “labour only,” use the company’s tools, and are moved between tasks at the manager’s discretion, then they are classified as employees, allowing them access to compensation otherwise denied to truly independent businesses. This case further demonstrates that a company’s legal liability may persist long after it has been wound up.

This case has profound implications for any sector that provides equipment or infrastructure, yet declares its workers to be independent subcontractors. Moreover, this landmark ruling may not be confined to liability insurance and could also be extended to other areas of accountability. Employers should thus ensure that the roles of subcontractors are clearly specified.

Why disregarding the minimum wage constitutes modern slavery

The National Minimum Wage (NMW) Act 1998 remains contentious, especially after the introduction of the NMW (Amendment) Regulations 2025, as it draws the legal line in the sand between employment and slavery, as highlighted by a recent case.  

The claimant was born in the Philippines in 1990 and travelled to the UAE in the employ of a diplomat and his family, after which she was relocated to London. Her three months of employment in the UK involved extreme exploitation, verbal abuse, threats and isolation, as she was effectively forced to work eighteen-hour days, with no breaks or rest days. Her movements were strictly controlled, as the family retained custody of her passport and frequently locked her inside the flat when they were away. She was further isolated by being denied access to a SIM card or the household Wi-Fi, while her compensation was almost non-existent, falling far below the statutory NMW.

It was concluded that, as she had been a victim of human trafficking and suffered from PTSD, she was granted leave to remain in the UK in 2015. The High Court awarded over £146,000 in ‘punitive’ damages in a “default” assessment, including £85,000 for false imprisonment and injury to feelings, £35,000 for psychiatric injury, and £15,000 in exemplary damages. Given the resurgence of modern slavery and human trafficking cases, this ruling renders “sub-clinical distress” a litigable tort in forced labour cases, potentially reaching the highest band of compensation.  

While the NMW Act allows for a “current rate” uplift in a standard Employment Tribunal, the Judge ruled that this does not automatically apply to a claim brought in tort. If a claimant sues for “servitude” or “negligence” rather than a straight breach of contract, they may only be entitled to the wage rates that existed at the time the work was done. This presents a claimant with a strategic choice between pursuing a statutory (i.e., for higher money) or a tort claim (for general damages, including PTSD).

Cases of severe harassment and abuse can result in a “loss of earnings” that can extend far beyond the period of employment, due to traumatic psychological damage or unwarranted references. Thus, HR departments should actively monitor ongoing workplace conflicts to safeguard against claims under the new Employment Rights Act and NMW (Amendment) Regulations. 

Payments made into employee benefit trusts constitute taxable income

A Tribunal recently ruled that payments made for work into a third-party trust constitute immediate employment earnings. This decision effectively precludes employers from using loan-based structures to obfuscate remuneration.

Mr. Jack was employed by an offshore company based in the Isle of Man while living and working in the UK. Under this arrangement, the fees paid for Mr. Jack’s services were split into a modest basic salary and an employee benefit trust (EBT), which would then advance these funds to Mr. Jack in the form of interest-free loans. Because these payments were categorised as loans rather than salary, they were not initially reported as taxable employment income.

Following an enquiry into Mr. Jack’s self-assessment return, HMRC issued a closure notice concluding that the £48,034 transferred to the EBT actually constituted “redirected earnings” and was, therefore, taxable as employment income under Section 62 of the Income Tax (Earnings and Pensions) Act (ITEPA) 2003. Mr. Jack appealed, arguing that a significant portion of the funds should be exempt from tax since he had repaid approximately £23,479 of those loans in April 2011.

The Tribunal upheld HMRC’s closure notice and applied the Supreme Court’s decision in RFC 2012 plc. The Judge held that, when money was paid into the EBT for work done by Mr. Jack, it effectively became taxable employment income at that exact juncture as “redirected” earnings. Mr. Jack’s argument that he had “fixed” the tax issue by repaying the loans was also rejected, as the tax charge arose on the transfer to the EBT, and anything that happened to the money afterwards did not affect the tax already owed for the 2010/11 tax year.

This ruling confirms that the legal characterisation of a relationship or a payment in a contract is secondary to the reality of the work performed. Care must be taken when creating structures to minimise tax burden and maximise profits, as the full amount transferred to a trust could be seen as ‘earnings’. Based on the Rangers case, if money is paid in return for services, it constitutes remuneration. On the other side of the coin, if a court views a loan as salary, it may also come to view the recipient as a worker who is entitled to full statutory rights.