Opinion

It is not just the economic gloom that means the days of secret six-figure bonuses are over. All non-rational unwritten bonus schemes are now high risk, however large the sum

Many employers have unwritten, non-transparent and imprecise discretionary bonus schemes, believing them vital to incentivise employees and to prevent them from making invidious comparisons with each other. In spite of guidance to the contrary from the Equal Opportunities Commission (EOC), they believe these kinds of bonus schemes are justifiable. However, the recent Employment Appeals Tribunal (EAT) case Barton v Investec Henderson Crosthwaite Securities will surely herald sweeping changes to bonuses.

The case was the first to grapple with the extent to which employers must prove that an employee has not been discriminated against, rather than placing the burden of proof solely on the employee. The case will also impact on the extent to which employers disclose information about their bonus schemes. This is particularly relevant given the new questionnaire procedure in claims under the Equal Pay Act 1970.

The case also gives real teeth to the EOC Code of Practice on Equal Pay. This encourages employers to adopt transparent pay systems so that employees can understand not only their rate of pay, but also the components of their pay packets and how each component contributes to total earnings.

In Barton, the EAT urges tribunals to examine carefully the employers' explanations for failure to comply with the code, and says inferences of discrimination should be considered where there is no adequate explanation for non-compliance.

The case sets out guidance in light of the statutory changes brought about by the European Commission Council Directive on the burden of proof in cases of discrimination based on gender. The EAT revisited the guidance in King v Great Britain China Centre on the drawing of inferences, and advocates an approach that says it is for the employee to prove on the balance of probabilities facts from which the tribunal could conclude, in the absence of an adequate explanation, that the employer has committed an act of discrimination. Tribunals must bear in mind that it is unusual to find direct evidence of sex discrimination. If the employee proves such primary facts, the tribunal must consider what inferences of secondary fact can be drawn from them. In considering what inferences it may or may not be appropriate to draw, the tribunal must take into account any failure to comply with any relevant code of practice or questionnaire procedure. At this point, the burden of proof moves to the employer, who must prove that it did not discriminate against the employee. In order to discharge the burden of proof, the employer must prove, on the balance of probabilities, that the treatment of the employee was in no sense whatsoever on the grounds of their gender. In determining whether or not the employer has discharged the burden of proof, the tribunal must assess not only whether the employer has advanced an explanation for the facts, but that the explanation is adequate to show that gender was not any part of the reason for the treatment complained of. The EAT is unequivocal in its guidance that tribunals should expect cogent evidence from the employer to discharge the burden of proof, because the facts necessary to prove any given explanation will normally be in the possession of the employer.

The EAT is asking a lot of employers. The onus is now firmly with the employer to show that the treatment of its employees includes not even the smallest element of discrimination. In an equal pay claim, the employer has always had the burden of proving an objective and material justification for any pay differential between female and male employees. What Barton shows is that, where there is a lack of transparency in a pay system, the likelihood of a tribunal drawing an adverse inference of discrimination is that much higher. Employers should be very nervous about continuing with any pay structures that include an unwritten discretionary bonus scheme. However, help is at hand: there are already 250 employer members of the Equal Pay Forum (set up by the EOC taskforce) to assist employers with reviews of their pay structures.