Judgment Details

Jeremy Lewis and Katherine Apps represented 10 Claimants against Boots Plc in Small & Others v Boots UKEAT/0258/08 judgment 23 January 2009.   

Small v Boots

The case involved Boots’ annual profit share bonus scheme. The Claimants were employees of Boots in two of their warehouses near Nottingham. In 2003 and 2004 the two warehouses were transferred to Unipart, and all of the Claimants transferred to Unipart under 1981 TUPE.  Prior to the transfer Boots had had a bonus scheme in operation for some 40 years.  In 2004 Unipart paid for the claimants to receive the bonus in respect of performance of Boots in 2003-2004. In 2005 Boots’ bonus scheme targets were not met and so neither Boots nor Unipart’s employees received a bonus. In 2006 Boots employees received a bonus, but the Unipart employees did not. In 2007 the Claimants were transferred under TUPE 2006 back to Boots.  They did not receive a bonus in 2007 from Boots but employees who had remained with Boots did.   The TUPE transfers, therefore, resulted in the employees not receiving a bonus in two consecutive years.

The ET had rejected the Claimants’ claims, but the EAT allowed the appeal and the case was remitted to a different tribunal.

The language of “discretion”

Elizabeth Slade J concluded that the ET had erred in regarding the language of discretion as inconsistent with contractual obligation.  In the context of this case, “discretionary” was held potentially to refer to a multitude of different factors: to the provision of an overarching bonus scheme; to a decision each year to operate a bonus scheme; to the method of calculation of bonus or; to the threshold which triggers or to whether and if so what percentage of salary will be paid.  In addition, the ET should have taken into account all relevant circumstances, including the invariable practice of making bonus payments over many years, in deciding when the discretion as to bonus payments had contractual content.

Assurances made during TUPE consultation

One further aspect of the case was that various assurances had been given during the consultation process for the transfer to Unipart that there would continue to be a bonus scheme after the transfer.   Slade J upheld the ET’s finding that these did not give rise to a contractual agreement.  It was argued that the context of the consultation process supported the contention that the assurances had contractual effect, since they were given on a formal occasion with the intention that they would be relied upon by the workforce and where consultation was required to be with a view to reaching agreement.  However in Slade J’s view, the fact that the assurances were given during informing and consulting under TUPE pointed against a contractual commitment.

The decision leaves a number of important issues for the remitted hearing. 

Fettering of discretion and the implied term of mutual trust and confidence

An important issue raised by the case is as to how fetters on the way a transferor may exercise discretionary decisions (in this case as to bonus) will affect the transferee’s position.   In this case it was argued that the transferee (Unipart) must be deemed to have adopted Boots’ longstanding bonus policy and that it operated to limit its discretion to fail to pay a bonus or to do so retrospectively.   The EAT held that the line of case law under the implied term of mutual trust and confidence and rationality (eg. Horkulak v Cantor Fitzgerald and Clark v BET) is relevant to this question. The issue of how such fetters transfer in the context of this case will be an issue the tribunal will now have to grapple with.  In addition, the decision on the consultation issue (above) left open the argument that assurances given during the consultation process were relevant to how the discretion as to bonus payments could be exercised following the transfer.

Same scheme or substantially equivalent scheme: following from MITIE Managed Systems v French

Another important issue left for the remitted hearing is whether, post transfer, any right was to the continued application of the Boots scheme or a substantially equivalent scheme.  The case of MITIE Managed Systems v French (in which Naomi Ellenbogen and Damian Brown, from Littleton, appeared) held in respect of a discretionary annual bonus scheme operated originally by Sainsbury’s, that it would have been impossible, absurd and unjust for that scheme in its entirety to have transferred. Employees were entitled to a scheme of substantial equivalence.  If there was only a right to a scheme of substantial equivalence this could not be brought by way of a deduction of wages claim.   It was argued for the employees that the option to introduce a substantially equivalent scheme rather than precisely to replicate the pre-transfer position is available only in narrow and exceptional circumstances (such as where it is impossible to replicate the pre-transfer rights). In this case it is claimed by the Claimants that it is possible, just and not absurd to pay the Claimants the rate of bonus which comparable Boots employees were paid in the 2 relevant years.  It will now be for the remitted hearing to address this issue.