Be clear of arrangements to pay bonus

OA recent employment tribunal judgment focused on the effective date of the claimant’s resignation and interpretation of the bonus clause in the employment contract. The judgment has some useful guidelines on the interpretation of contracts.

The employee in question joined a business under an executive employment agreement which was later updated to state that the employment would continue (unless terminated earlier under the agreement) until ended by 52 weeks’ written notice by either party, and that notice by the employee could not expire before 31 December 2016.

The agreement stated that he would receive a bonus advance of £500,000, but this was backed by a repayment clause which expressly stated that if he resigned on or before 31 December 2016 the advance would be repayable in full.  The employee resigned; the employer sought to recover the bonus as it believed that the clause had been broken and the employee argued.  Essentially, after legal wrangling the appeal court agreed that the employee was expected to repay the bonus in full and relied on the “unambiguous language” in the bonus clause.

This case reminds us of the need to be very clear around bonus payments – in particular when the employer would NOT wish them to be paid out! If you want to ensure that your bonus clauses are equally tight and protect the business then ensure that the following is in place:

Use clear and concise language. Avoid long-windedsentences which may be ambiguous.
Decide on the form of bonus you wish to pay – a guaranteed amount and whether it can only be paid in full or in part.
Decide if the bonus is to be discretionary, or a guaranteed amount.  It is possible to have a completely discretionary bonus as long as the rules relating to discretion are explained fully.
Set out the payment arrangements – will the bonus be paid in one amount or in instalments?
Decide whether any target has to be met by the employeeor the business before payment is met and be clear about it.
State what happens to the payment if the employee has given notice to end employment or has left the business or is on garden leave.
Do not exclude women on maternity leave from bonus entitlement.

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