Two cases on bonuses

Two cases from the end of last year are worth noting for their conclusions as regards the payment of bonuses.

In Humphreys v Norlisk Nickel International the claimant, an economist, was hired on a one year contract to provide the Respondent with economic advice relating to the mining industry. At the conclusion of the first year he received a bonus and a second one year contract was entered into which also had provisions relating to a discretionary performance bonus.

The claimant left the company before the end of the second year and prior to having been paid any bonus. When he contacted the company to claim the bonus he was told that it would not be paid as his performance had not been satisfactory, specifically because he had inaccurately forecast the price of nickel ore. At the High Court he lost his claim for the bonus on the basis that although the economic situation was changing rapidly at the time of the second contract, which would have made forecasting difficult, there was no reason why he should receive a bonus for “failing to do so”. In addition the judge noted that the employer was not acting irrationally as it would have been irrational to have paid a bonus in a year when the business made a loss in the nickel ore trade.

The second case (Locke v Candy and Candy Limited) pertained to an employee who was dismissed receiving a payment in lieu of notice just days before he would have become entitled to a significant contractual bonus. He claimed on the basis that were it not for the payment in lieu of notice clause, which read ‘The Company reserves the right to make a payment in lieu of notice’, he would have received the bonus.

Locke’s claim failed as the payment of the bonus was expressly dependent upon his being employed on the date when the bonus became due and as he was summarily dismissed before that date, the bonus was not payable as part of his pay in lieu of notice or otherwise.

This judgment underlines how important it is that clear wording is used in both payment in lieu of notice and bonus clauses for your employees and that they should be considered in the light of one another.