Unlawful Deduction from Wages - All workers and employees have protection against unlawful deductions being made from their wages. Deductions from wages are unlawful unless the following situations apply:
- They have been authorised in writing before the deduction is made;
- They have been authorised by statute (such as deductions for tax and national insurance contributions); or
- They have been authorised by your contract of employment.
Unlawful deductions include any deductions from your wages that you have not agreed to either under the first and last bullet point above, for example if payments have been deducted from your wages for poor work which you have completed, or you have been paid a lower hourly rate than you were expecting. If such deductions are made without your authority, you could bring a claim in the Employment Tribunal for an “unlawful deduction from wages”, a claim which can be brought whilst still in employment, if necessary.
Many payments from your employer are covered in the definition of “wages”, such as any contractual bonuses, commission entitlements, holiday pay, statutory sick pay or maternity and paternity related allowances, paid time for antenatal care or trade union duties or paid periods of suspension.
Expenses are not included in this definition, but can potentially be recouped through a breach of contract claim.
Any Employment Tribunal claim which is brought for an unlawful deduction from wages can also seek to recover bank charges or interest which you have incurred or lost out on as a result of the deduction.
If a bonus is confirmed in your contract of employment, it is likely to be defined as wages, as long as there is not discretion about whether your employer pays this or not. It is more difficult to argue that discretionary bonuses or bonuses not contained in your contract of employment can be seen as “wages”. A non contractual bonus only becomes “wages” when it has actually been paid, not when it has been declared and payment is due. It is therefore difficult to make non contractual bonuses the subject of a claim for unlawful deduction from wages. This is a complex area of law, and whether you have a legal entitlement to bring a claim for unlawful deduction from wages will depend on the circumstances. You should therefore take detailed legal advice from one of the Employment Law specialists at Taylor & Emmet if you believe you are owed such a payment.
A further point to note is the issue of “custom and practice” in Employment Law. A term such as an entitlement to a bonus, which has not previously been explicitly recognised, may be implied into your contract through custom and practice following regular informal usage. Such custom and practice must be "reasonable, certain and notorious" for it to amount to an implied term of the contract. For example, if you have regularly received an annual bonus based on your performance, this may become part of you contract of employment through custom and practice and could therefore become part of your wages, allowing you to bring an unlawful deduction from wages claim if it is not paid.
Share options are often used as part of an incentive package for senior employees. A share option is the right to buy a certain amount of your employer’s shares at a fixed price at a point in the future, regardless of the future market price. Share options have a “vesting period” during which you cannot exercise the options. At the end of this “vesting period”, once the shares have “vested”, you can exercise your right to buy the shares under the share option. If the share price has increased, this gives you the right to claim an instant profit. The ability for an employee to exercise his or her share options upon the termination of their employment often depends on the leaving provisions in the share option agreement, and specifically whether they are classed as a “good” or a “bad” leaver. Good leavers (those who involuntarily leave for reasons such as redundancy or retirement) generally retain their share options, whereas bad leavers (those who resign or are dismissed) may lose the option to exercise their shares.
The specialist Employment lawyers at Taylor & Emmet are very experienced in advising employees on share option schemes, long term incentive plans and bonus schemes, as well as contracts of employment and settlement agreements, which may contain clauses relating to bonus schemes and share options.