Recent employment law decisions often provide valuable lessons for employers, and the case of Mr P Chandrashekarappa v Wipro Ltd is a timely reminder of the importance of having clear, well-managed bonus arrangements and also outlines some pitfalls when dealing with discretionary arrangements.

The Employment Appeal Tribunal (EAT) has confirmed that employers cannot retrospectively introduce new conditions or restrictions to a discretionary bonus once the relevant discretion has already been exercised. Whilst this seems like a ‘no brainer’ it’s worth exploring this particular case.

What Happened?

The employee worked in a sales role and participated in a discretionary bonus scheme. Under the scheme, employees could receive a bonus of up to 1% of the revenue generated from new business opportunities, subject to approval from the relevant sector lead.

After successfully securing a major contract with John Lewis Partnership, their sector lead approved the payment of the full 1% bonus in line with the scheme rules that had been communicated to employees.

However, several weeks later, another senior manager introduced additional requirements, including a need for further executive approval and a cap on bonus payments. Wipro subsequently informed the employee that his bonus would be limited to the capped amount, despite the earlier approval.

The difference was significant. The employee argued that he was entitled to the full bonus, worth more than £500,000 and the cap restricted that amount to $150,000 or the local equivalent.

The Tribunal’s Decision

While the Employment Tribunal initially dismissed the claim, the Employment Appeal Tribunal reached a different conclusion.

The EAT found that the employee’s entitlement had effectively crystallised when the sector lead approved the full bonus in accordance with the scheme rules as they stood at the time. Once that discretion had been properly exercised, Wipro could not later introduce new approval stages or impose a cap that had not previously formed part of the scheme.

In simple terms, the employer could not “move the goalposts” after the decision had already been made.

Why This Matters for Employers

Many businesses use discretionary bonus schemes to reward performance while retaining flexibility. However, this case demonstrates that discretion is not unlimited.

If a bonus scheme sets out a particular approval process, and that process is followed, employers may find it difficult to argue later that additional conditions should apply. Even where a scheme is described as discretionary, decisions made under that scheme can create enforceable entitlements.

The case highlights several areas where employers should take particular care:

• Clearly define who has authority to approve bonuses.
• Ensure all approval stages are documented within the scheme.
• Communicate any caps, conditions or eligibility requirements in advance.
• Review bonus arrangements regularly to ensure they remain fit for purpose.
• Train managers so they understand the extent of their authority and the implications of approval decisions.

Common Risks We See

In practice, bonus disputes often arise not because employers intend to act unfairly, but because schemes have evolved over time without being properly updated.

We frequently see situations where:

• Different managers interpret bonus rules differently.
• Approval processes exist informally but are not documented.
• Payment caps are applied inconsistently.
• Scheme wording is ambiguous or outdated.
• Business leaders assume they can revisit a decision after approval has been given.

These issues may expose you to costly disputes, employee relations challenges and potential legal claims.

Key Takeaway

A well designed bonus scheme should balance flexibility for the employer with clarity for employees and achieving that balance often requires more than simply drafting a policy document.

The decision in Mr P Chandrashekarappa v Wipro Ltd serves as an important reminder that employers cannot retrospectively alter the terms of a bonus once discretion has been exercised in accordance with the scheme rules.

For employers, the message is clear: if conditions, approval requirements or payment caps are intended to apply, they should be established and communicated before any bonus decisions are made. Once a decision has been properly approved, changing the rules afterwards may simply be too late.

To view the case in more details please click here.