Failure to pay bonus due to sickness absence

 Andrew Rowland explores the implications of withholding pay progression in cases of sickness absence.

In the case of Land Registry v Houghton, the EAT has upheld the ET’s decision that an employer discriminated against disabled employees in the operation of a bonus scheme that automatically excluded those who had received a formal warning for sickness absence. This amounted to discrimination arising out of disability contrary to section 15 Equality Act 2010, which could not be justified.

Facts

Under the terms of a discretionary bonus scheme operated by the Land Registry, employees who had received a warning due to high levels of sickness absence were not eligible to receive the bonus.
Five employees, all of whom were disabled for the purposes of the Equality Act 2010, and who had received a warning for sickness absence during the 2012 financial year, brought claims against the Land Registry for discrimination arising out of disability. The Land Registry had already made a number of reasonable adjustments in respect of each claimant’s disability, including adjusting the trigger points for a sickness absence warning. The Land Registry argued that the link between the Claimants’ disability and the non-payment of the bonus was too remote. The Employment Tribunal (ET) ruled that the operation of the bonus scheme did amount to discrimination arising out of disability, and that it could not be objectively justified. The Land Registry appealed to the Employment Appeal Tribunal (EAT).

The EAT decision

The EAT dismissed the Land Registry’s appeal, holding that the claimants’ automatic exclusion from the bonus scheme as a result of their disability-related absence, was clearly sufficient to amount to unfavourable treatment arising out of their disability. It was irrelevant that, as the Land Registry had argued, their exclusion from the bonus scheme was an administrative act done by HR, without knowledge of their disability.
The EAT also upheld the ET’s findings in relation to justification. It was significant that the bonus scheme allowed for managers to exercise their discretion when considering whether to take into account formal warnings received for reasons relating to conduct, and it was therefore anomalous that no such discretion could be exercised in relation to warnings for sickness absence. Further, the scheme did not allow for improvements in sickness absence following a warning to be taken into account. This was a significant factor, given that the legitimate aim of the bonus scheme was to reward performance and attendance.

What to take away

The Houghton case will be of interest to employers in the health sector, in which attention has recently been focussed on the issue of pay progression and whether or not it can be withheld due to sickness absence. This case provides useful guidance for employers on the risks involved in withholding benefits on the grounds of sickness absence, and the possibility of a claim under section 15 of the Equality Act. Employers who wish to link pay progression to sickness absence would be advised to build some discretion and flexibility into such an arrangement, to avoid automatically withholding pay progression where this might amount to discrimination.

Andrew Rowland, partner, Capsticks