Can Redundancy Affect Bonus Payments?

Redundancy can have a significant impact on bonus entitlement in England and Wales, but there is no single rule that applies in all cases. Whether an employee receives a bonus following redundancy depends primarily on the terms of the employment contract, the bonus scheme rules, and the timing of the redundancy in relation to the bonus period.

Under UK employment law, bonuses are usually contractual, discretionary, or a hybrid of both. This classification is central to determining whether an employee retains any entitlement when their employment ends due to redundancy.

Types of Bonus Schemes in UK Employment Law

Bonus arrangements typically fall into three categories:

1. Contractual bonuses

These are legally binding if the conditions are met. They may include:

• Guaranteed annual bonuses
• Formula-based bonuses linked to performance or profit
• Commission-based payments treated as bonuses

2. Discretionary bonuses

These are not guaranteed and are awarded at the employer's discretion, often based on:

• Company performance
• Individual performance
• Overall business conditions

However, discretion must still be exercised lawfully and in good faith.

3. Hybrid schemes

Many employers use schemes that combine both elements, for example:

• A discretionary pool with structured eligibility criteria
• “Guaranteed discretionary” bonuses subject to performance thresholds

Can You Receive a Bonus After Redundancy?

Yes, in some circumstances. Redundancy does not automatically remove bonus entitlement. The key question is whether the bonus has already been earned or accrued at the point of termination.

Key factors include:

• Whether the bonus period has ended
• Whether performance conditions have been met
• Whether the employee must be “in employment” at payment date
• Whether redundancy is treated as a “good leaver” event
• The wording of the bonus scheme or contract

Courts and tribunals generally interpret bonus entitlements strictly according to contractual terms, rather than fairness alone.

Contractual Bonus Rights and Redundancy

Where a bonus is contractual, employees may still be entitled to payment if they have satisfied the conditions before redundancy occurs.

Common scenarios include:

• Bonus earned during a completed financial year but paid after dismissal
• Commission accrued on completed sales prior to redundancy
• Performance bonuses tied to measurable targets already achieved

In such cases, employers may be required to pay the bonus as part of final wages or severance calculations.

Discretionary Bonuses and Employer Flexibility

Discretionary bonuses are more complex. Employers often reserve the right to:

• Decide whether to pay a bonus at all
• Reduce or withdraw bonuses in redundancy situations
• Require employees to remain employed on the payment date

However, discretion is not unlimited.

Employers must:

• Exercise discretion rationally and consistently
• Avoid discrimination (for example, based on protected characteristics)
• Follow any implied contractual terms of trust and confidence

Failure to do so can result in claims for breach of contract or unlawful deduction of wages.

“In Employment” Clauses and Bonus Forfeiture

Many bonus schemes include clauses requiring employees to be “actively employed” or “not under notice” on the payment date.

These clauses often lead to disputes during redundancy situations.

Typical wording may state:

• No bonus is payable if employment ends before payout
• Employees must be continuously employed throughout the bonus year
• Employees under notice are excluded

However, such clauses may be challenged if:

• The bonus was already substantially earned
• The clause is applied inconsistently
• The clause conflicts with other contractual obligations

Employment tribunals will examine whether the bonus is genuinely conditional or whether it has already been earned in substance.

Redundancy Timing and Bonus Entitlement

Timing is often decisive.

1. Redundancy after bonus year ends

Employees are more likely to retain entitlement if performance conditions were met before termination.

2. Redundancy during bonus year

Entitlement may be pro-rated depending on scheme rules.

3. Redundancy before performance conditions are met

Bonus is often reduced or lost unless the scheme provides otherwise.

4. Notice period overlap

If redundancy notice overlaps with bonus payment dates, entitlement depends heavily on “active employment” clauses.

Good Leaver Status and Redundancy

In many bonus and incentive schemes, redundancy is classified as a “good leaver” event.

This can result in:

• Pro-rata bonus payments
• Retention of earned but unpaid bonuses
• Partial payment under long-term incentive plans

However, “good leaver” treatment is not automatic and depends on the scheme wording.

Legal Principles Governing Bonus Disputes

Bonus disputes during redundancy are governed by:

• Employment contract terms
• Bonus scheme documentation
• Implied terms of mutual trust and confidence
• Principles of rational and non-discriminatory discretion

Tribunals generally do not rewrite bonus schemes but will intervene where:

• Terms are unclear or ambiguous
• Discretion is exercised irrationally
• Employees are treated inconsistently without justification

Unlawful Deduction of Wages Claims

Where a bonus is contractual, failure to pay may give rise to a claim for unlawful deduction of wages.

This is relevant where:

• Bonus is clearly earned
• Payment is withheld solely due to redundancy
• Contract does not clearly exclude entitlement

Such claims can be brought in an employment tribunal, subject to strict time limits.

Common Disputes in Redundancy Bonus Cases

Frequent issues include:

• Disagreement over whether bonus was “earned” or discretionary
• Interpretation of “active employment” clauses
• Pro-rating of annual bonuses
• Treatment of employees under notice
• Unequal treatment between employees in redundancy pool

These disputes often turn on detailed contractual interpretation.

Practical Examples

Example 1: Completed performance year

An employee is made redundant after the financial year ends but before bonus payment. If performance targets were met, the bonus is likely payable.

Example 2: Mid-year redundancy

An employee is made redundant halfway through a bonus year. The employer may pro-rate the bonus depending on scheme terms.

Example 3: Discretionary bonus withheld

An employee is made redundant and the employer refuses a discretionary bonus despite strong performance. Tribunal scrutiny may focus on whether discretion was applied fairly.

Employee Steps When a Bonus Is Withheld

Employees affected by redundancy may consider:

• Reviewing contract and bonus scheme rules
• Checking whether performance conditions were met
• Requesting written reasons for non-payment
• Raising a formal grievance
• Bringing an employment tribunal claim for unpaid wages or breach of contract

Time limits for tribunal claims are generally three months less one day from the date payment was due.

Key Takeaways

Redundancy can affect bonus payments, but it does not automatically remove entitlement. Whether a bonus is payable depends on whether it is contractual or discretionary, whether performance conditions have been met, and whether scheme rules require active employment at the payment date. Courts and tribunals focus heavily on contract wording and fair exercise of discretion. Employees may still be entitled to bonuses earned before redundancy, even if payment is due after termination.