Employment law

By Martin Edwards, Mace & Jones, Liverpool

Breach of contractClark v Nomura International plc (2000) IRLR 766In one nine month period, an equities trader earned high profits for his employer and was awarded a bonus of 1.75m.

In the next three month period, he received a bonus of 800,000.

In the next nine months he was again responsible for high profits, but after his dismissal, he was paid his basic salary for his notice period, but received no bonus at all.

Other senior employees, including one whose department made a loss, were awarded substantial bonuses.

The High Court held that the employer was in breach of contract, even though the contract described the bonus as 'discretionary' and 'not guaranteed in any way and ...

dependent upon individual performance'.

An employer exercising a discretion which on its face is unfettered or absolute will be in breach of contract if no reasonable employer would exercise the discretion in that way.

However, the concept of an obligation on an employer to act reasonably in the exercise of its discretion is too low a test.

In applying a test of perversity or irrationality, the court does not substitute its own view, but asks whether any reasonable employer could have come to such a conclusion.

The employers were under an obligation to award a bonus only by reference to an assessment of the employer's individual performance.

Profitability was not the only yardstick, and the employers were entitled to consider issues such as corporate contribution, team working, capital usage and due regard to wish.

But those matters had to be set in the context of the requirement for the employee to make a profit and his contractual duties.

Where a bonus is contractually required to be considered on the basis of individual performance, then in the absence of any deficiency or variation in individual performance, employees are contractually entitled to be treated equally.

The decision to award a nil bonus to an employee who had generated substantial profits was plainly perverse and did not comply with the terms of the discretion.

The High Court concluded that, had the employer complied with its contractual obligation, the trader would have received a bonus of 1.35m and thus he should be awarded that sum as damages for breach of contract.

Beveridge v KLM UK Ltd (2000) IRLR 765Following a lengthy sickness absence, an employee informed her employers that she was fit for work and produced a doctor's certificate to that effect.

However, the employer refused to take her back until, six weeks later, his own doctor was satisfied that she was fit to work.She claimed that failure to pay her during the period when although she was willing to work the employer would not let her do so amounted to an unauthorised deduction from wages.

A tribunal chairman rejected her claim, but the EAT allowed an appeal.

An employee who offers her services is entitled, at common law, to be paid unless a specific condition of the contract says otherwise.

It is for the employer to show that the contract entitles him to withhold payment.

The employee did everything possible, so far as her side of the bargain was concerned, by offering her services against a background of a certificate of good health.

This decision may prompt employers to review their contractual terms in relation to employees who seek to return to work after a lengthy period of absence on the ground of sickness.