An employer's 'discretion' — an unfettered right?

In a welcome judgment for employers, the Guernsey Employment and Discrimination Tribunal recently rejected an employee’s claim for constructive unfair dismissal and upheld an employer’s right to exercise its discretion in accordance with the terms of its discretionary bonus scheme.

But the decision may not be as comforting as it initially appears.

In the UK, it has long been accepted that an employer is entitled to exercise their discretion in whatever way they see fit, provided that it is not done in an ‘irrational or perverse’ manner. Therefore, should an employee wish to challenge the validity of an employer’s decision to exercise (or not to exercise) its discretion, this is an exceptionally high threshold for an employee to surmount. Pursuant to this test, an employer is under no obligation to exercise its discretion reasonably but rather it must not exercise it in bad faith or capriciously. For example, it would be considered ‘irrational’ if an employer had exercised their discretion based on whether they liked an employee’s shoes or whether the employee was shorter (or taller) than the managing director…

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