Christmas is a time of generosity, and many employers extend this to Christmas bonuses to their staff. However, when times get tough it’s not always possible to maintain this generosity.

My client has a chain of bakeries. Unfortunately, their business has been struggling for some time now. For the past five years they have paid a Christmas bonus which has been equal to four weeks’ wages for all employees.

The bonus has never been referred to in any contract of employment - it has only ever been seen as a gesture of goodwill from the organisation to the employees. This year they cannot afford to pay it. What do they need to know about withdrawing the bonus this year?

Although the Christmas bonus is not an express term written within the employees’ contracts of employment it seems that it has become an implied term through ‘custom and practice’.

This can happen when the ‘thing’, in this case the payment of the bonus, occurs regularly. As the bonus has been paid for five consecutive years it could be argued that this is a regular occurrence, and hence is part of the contract through custom and practice.

Case law shows us that for a term to be implied in a contract, there must be evidence from which it can be inferred that the parties consider themselves to be bound by it.

In this case, this can be inferred from the fact the bonus has been paid for the last five years at a consistent amount.

An implied term must also be certain and reasonable, ie, it should be generally established that the ‘thing’ the term relates to happens, how that ‘thing’ happens is clear and it is exercised reasonably. Again, the regular payment of the bonus fits these requirements.

As the term to pay the Christmas bonus would likely be found to be implied, failure to do so would be in breach of the contract of employment and this could result in claims against your client by affected employees.

If there is no way to pay the bonus, then the employer might consider trying to negotiate a change to the contractual term. The starting point should be to talk to the employees, or if they are in place their representatives, explaining the difficulty that the organisation will have in paying the Christmas bonus this year.

It might be possible to reach an agreement with the employees that the bonus is not paid, and if so, the employer should ask them to sign an agreement that they will not receive the bonus this year. At the same time they might want to negotiate an agreement about the nature of the bonus for future years.

If negotiating doesn’t work, there is the possibility of imposing the change, but doing so would be a risky move. If the employer does this the employees could resign and claim constructive dismissal, seeing the refusal to pay the Christmas bonus as a breach of contract. Alternatively, the employees could stay in employment and bring a claim of unlawful deduction of wages under the Employment Rights Act 1996.

In deciding which option to take your client needs to assess the risks against the costs of continuing with payment of the Christmas bonus.

By Stacie Cheadle, technical writer, Croner-i

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