Managing director wins constructive dismissal claim after bonus underpayment
A managing director with 19 years' service was constructively dismissed after her employer paid her a bonus £15,975 short of what was owed. The tribunal awarded damages and a 40% Polkey reduction.
1 min read · Last updated 18 May 2026
Case details
Key facts
- The claimant was employed as managing director from 1 October 2001 until her resignation on 9 October 2020.
- A bonus arrangement existed since 2006, entitling the claimant to 15% of net profit above a threshold, based on management accounts.
- The respondent paid the claimant a bonus of £42,813.45 on 16 September 2020 instead of £58,788.45, a shortfall of £15,975.
- The claimant resigned on 21 September 2020, citing the bonus underpayment as the main reason.
- The tribunal found the respondent breached the express term of the bonus arrangement and the implied term of trust and confidence.
- A Polkey reduction of 40% was applied to any compensatory award due to the chance the claimant would have resigned anyway.
Timeline
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Employment started
Claimant began employment with the respondent.
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Appointed Managing Director
Claimant became managing director of the respondent.
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Bonus arrangement agreed
Claimant and Richard Cryer agreed a bonus scheme: 15% of net profit above a threshold, based on management accounts.
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David Cryer became Chair
David Cryer took over as Chair of the respondent.
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Bonus paid
Respondent paid claimant a bonus of £42,813.45 instead of the claimed £58,788.45.
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Claimant resigned
Claimant resigned on six months' notice, citing the bonus underpayment as the final straw.
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Employment ended
Claimant's employment terminated by resignation.
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Claim presented
Claimant presented her claim to the Employment Tribunal.
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Hearing day 1
Substantive hearing held via video.
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Hearing day 2
Substantive hearing continued.
The legal issue
The tribunal had to decide whether the respondent's failure to pay the full contractual bonus was a fundamental breach entitling the claimant to resign and claim constructive dismissal, and whether it also amounted to an unauthorised deduction from wages.
The outcome
The tribunal upheld the claimant's claim for constructive unfair dismissal and breach of contract.
The key reason was that the respondent paid a bonus of £42,813.45 instead of the contractual £58,788.45, a shortfall of £15,975. This was a fundamental breach of the express bonus term and the implied term of trust and confidence.
Compensation:
- Damages/unauthorised deduction: £15,975 (gross)
- A Polkey reduction of 40% was applied to any compensatory award for unfair dismissal, reflecting the chance the claimant would have resigned anyway.
Lessons & takeaways
- A bonus arrangement that has been consistently applied can become a contractual term, and underpaying it can be a fundamental breach.
- Constructive dismissal claims can succeed even when the breach is a single act, if it is sufficiently serious to destroy trust and confidence.
- Employers should ensure bonus calculations are transparent and based on agreed criteria, especially for long-serving senior employees.
- A Polkey reduction may be applied if there is evidence the employee might have resigned in any event, reducing compensation.
When a bonus shortfall becomes a final straw
This case shows how a seemingly straightforward bonus dispute can escalate into a constructive dismissal claim, particularly for a long-serving senior employee. The managing director had worked for the company for 19 years and had a well-established bonus arrangement: 15% of net profit above a threshold, based on management accounts. When the company paid her £15,975 less than she expected, she resigned, citing the underpayment as the final straw.
The tribunal found that the bonus arrangement was an express term of her contract, and the underpayment was a fundamental breach. It also breached the implied term of trust and confidence, because the company unilaterally changed the basis of calculation without agreement.
What the employer could have done differently
The respondent could have avoided the claim by honouring the agreed bonus formula or, if it believed a different calculation was correct, by discussing it with the claimant and reaching a clear agreement. Instead, it paid a lower amount without proper explanation, which the tribunal saw as a breach of contract. For employers, this is a reminder that bonus schemes, especially those that have been in place for years, should be treated as contractual obligations.
Why the result matters
The case reinforces that constructive dismissal can arise from a single financial breach, not just a pattern of behaviour. It also highlights the importance of clear bonus terms and transparent communication. The 40% Polkey reduction shows that even when a claim succeeds, compensation may be reduced if there is evidence the employee might have left anyway. For employees considering a similar claim, it is essential to show that the breach was the reason for resigning and that they did not affirm the contract.
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