An employer's power to alter a discretionary bonus scheme after it has been triggered is strictly limited. In the landmark case Chandrashekarappa v Wipro, the EAT (Employment Appeal Tribunal) delivered a crucial ruling. The judgment establishes that once a discretionary bonus is approved under its original terms, an employer cannot retroactively change the rules to reduce the payout.
The promise and the payout discrepancy
The claimant worked in a sales role for the global IT firm Wipro. During a company presentation, Wipro announced a discretionary "kitty bonus" scheme.
The Terms: Sales staff could earn up to 1% of revenues from new business.
The Condition: Payouts were subject to approval from the relevant sector lead.
The claimant successfully secured a high-value contract with the John Lewis Partnership. Following the announced rules, the sector lead reviewed the deal and formally approved a proposal for the claimant to receive the full 1% bonus.
Retroactive changes and the "capped" reality
Several weeks after the sector lead's approval, Wipro's senior management altered the process. They introduced two new hurdles to the existing scheme:
Higher sign-off: Requirements for approval from more senior executives.
Financial cap: A hard limit of £150,000 on payouts.
In December 2020, Wipro formally communicated that the claimant's bonus would be capped at £150,000. However, under the original 1% calculation, the claimant was owed over £500,000 based on first-year revenues. The claimant launched an ET (Employment Tribunal) claim for unlawful deduction from wages to recover the difference.
The decision
The EAT overturned the initial decision by the ET, substituting a finding that Wipro had committed an unlawful deduction from wages.
They identified a critical flaw in the lower court's logic. The ET had treated management's later, subjective change of mind as the deciding factor.
The EAT clarified the correct legal analysis:
Crystallisation: The claimant’s entitlement legally crystallised the moment the sector lead exercised their discretion to approve the 1% bonus.
Binding terms: That approval was made in strict accordance with the scheme rules originally communicated to staff.
No retrospective capping: Wipro could not later "move the goalposts" by adding layers of executive approval, or introducing a cap, that did not exist when the contract was performed and approved.
Key takeaways
Discretion is not absolute: "Discretionary" means an employer can choose whether to trigger a scheme, but they must follow the framework they built once they do.
Communication locks the terms: The criteria communicated to staff form the legal boundaries of the bonus scheme.
Approval is the point of no return: Once the designated decision-maker grants approval under the active rules, the bonus becomes a legal entitlement.
This ruling serves as a stark warning to businesses: clear, well-drafted bonus policies are vital, and retroactively changing rules to avoid large commission payouts will not hold up in court.
How we can help
We can draft bespoke policies for your business as part of the Employment Service Consultancy offering (fees apply). Please contact the Helpline 0370 840 0234 or email us at [email protected] for further information.
More from NFU Employment Service:
Not yet an NFU Employment Service member? Join today and take advantage of a host of guidance to support you navigating the complex world of employment law.
You'll also receive access to a wide range of member benefits – with discounts ranging from cars to health insurance.
For more information, call us on 0370 840 0234 or email us at [email protected]