If you want to be sure that an employee who has worked during the relevant performance period, is not entitled to a bonus if he has left employment by the payment date, take steps to include an express terms in the employment contract to make that position clear. It can cost you dearly if you fail to do this, as illustrated by the recent case of Rutherford v Seymour Pierce Ltd .
Seymour Pierce Ltd (SPL) operated a bonus scheme where 40% of the commission earned by employees was paid into a bonus pool. Half of the anticipated pool was paid out at the end of the third quarter. The rest was paid out after the fourth quarter.Mr Rutherford was dismissed during the last quarter and he claimed for the balance of the bonus payment for the last quarter. There was no express term saying that a participant had to be in employment on the day of payment.
SPL argued it was an implied term of the contract that to be entitled to the payment, the employee had to be employed by and/or under notice of termination of their employment as at the date of payment of any award.
SPL lost in the High Court which refused to imply such a term. It simply was not necessary to imply such a term for the contract to operate satisfactorily. The Court put itself in SPL’s shoes and decided that if SPL had exercised its discretion reasonably, Mr Rutherford would have been entitled to the bonus.
Mr Rutherford was awarded £70,000, which was between the upper and lower limits of the available bonus entitlement.
What do we learn from this case?
Make sure you have clear wording in the employment contract or bonus scheme to deal with this situation.
Link to case
