The 2008 financial crisis gave rise to a wave of bonus and pay disputes, and the same may happen again as the UK faces a prolonged period of economic uncertainty. Partner Charlie Thompson looks at the issues the pandemic and the end of the Brexit transition period may have on bonus and pay disputes this winter.
It is tempting to assume that like so many plans made at the beginning of the year, bonuses for 2020 will be cancelled or postponed. This assumption may be an error.
Some find it objectionable that a business would contemplate paying bonuses when they have been cutting pay, making staff redundant, furloughing others and taking on government support. That is, however, what many organisations have done. A number of high-profile businesses, including airlines BA and Ryanair and the restaurant group that owns Wagamama, have recently faced down shareholder rebellions and negative PR by rewarding their CEOs handsomely. Companies are seeing the value in rewarding their staff, even if it risks controversy in the short term.
Bonuses are typically a tool to reward past performance and encourage loyalty to the organisation, whether that is in the form of up-front cash payments, equity awards or deferred awards that vest over time. In many businesses where revenues have dropped and staff have been furloughed or made redundant, the remaining employees have worked harder than ever to pick up the slack and secure the company’s future. Those staff will expect to be rewarded for their performance, and it is risky for an employer to assume that they will be grateful simply to still have a job.
And while the pandemic has rocked the economy, certain areas have performed strongly, including tech, e-commerce and professional service businesses without a heavy focus on property or transactional work. Employees in those areas may consider themselves entitled at least to the rewards they received pre-pandemic.
However, with the Brexit transition period coming to an end, those businesses are likely to be concerned about continued economic uncertainty and the risk that although they have been busy their liquidity will be affected by debts being unpaid by clients who are on the brink of insolvency. While corporate insolvencies dropped to their lowest level since 2016 in Q2 of 2020, it seems inevitable that this figure will rise.
Many employers may, therefore, decide to take a cautious approach by awarding lower bonuses, bonuses with substantially more deferred elements or even no bonuses at all. In addition, some employers might attempt to claw back bonuses that have already been awarded. Others, whose employees agreed in good faith to temporary cuts in pay and to cover for absent staff over the last year may have seen their revenues remain steady or even grow. These employers might conclude that they can take an even more miserly approach, especially if the job market is stagnant in their sector and their employees do not have anywhere else to go. They would do so at the risk of being accused of opportunism and further alienating what may be an already demoralised workforce.
Where employers take these steps, they may open themselves to the risk of claims for breach of contract or unlawful deductions from wages (among other claims). The 2008 financial crisis gave rise to a raft of bonus and pay disputes, and the same may happen again as the UK faces a prolonged period of economic uncertainty.
Even where bonuses are awarded, employers must be careful about how the bonus pool is distributed. Many employers may conclude that it is best for employee relations for those on the highest pay packets to take the biggest hit on their bonuses. To do so risks annoying their top performers, who are the likely to be the most difficult to replace. In addition, bearing in mind Samira Ahmed’s successful equal pay judgment against the BBC was less than 12 months ago, female employees who suspect they are being paid less than their male colleagues may be paying extra attention.
But that is not all. Competitors will be watching each other closely. Those who are more cautious may lay themselves open to raids from other employers who spy an opportunity to poach their demoralised top performers with generous signing on bonuses. From this, we can expect to see a flurry of litigation, as employers seek to enforce post-termination restrictive covenants in the courts.
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