Recent case law has made many an employer wary of making awards of nil bonus to leavers even when the contract gives them apparent discretion to do so.
In summary, in the cases of Clark v Nomura International plc and Horkulak v Cantor Fitzgerald International, it was held that wherever discretion may be exercised in a bonus scheme, the discretion must not be exercised in a "capricious", "perverse" or "irrational" manner. This rule is based on the implied term of trust and confidence implied into all contracts of employment. Exercising discretion in an "irrational" or "arbitrary" manner can amount to a breach of the implied contractual term of trust and confidence. Furthermore an employer must exercise its discretion in good faith.
The recent case of Ridgway v JP Morgan Chase Bank National Association decided by the High Court is interesting not only for the point at issue but also for a point not considered.
The case concerned a claim by their former head of the options desk that a decision to award him nil bonus for a period in 2003 was irrational because no proper assessment or performance review had been carried out. Mr Justice Forbes was persuaded that did not matter because Mr Ridgway had made a 2.3 million dollar trading loss.
Without a clear financial indicator of problem performance such as this, and sometimes even with it, employers would still be well advised to think carefully about making awards of no bonus at all to leavers.
And now to the point not decided. This claim predated the introduction of the Employment Equality (Age) Regulations 2006. In the proceedings it emerged that the employer allowed "good leavers" to keep stock options provided leavers had at least 5 years continuous service and their age and cumulative service totalled at least 45 (the rule of 45). Whilst the 5 years’ service criterion falls within an exemption under the Regulations, the requirement for an employee’s service plus age to total at least 45 is potentially age discriminatory (unless objectively justifiable). For example, a 40 year with 5 years’ service would be entitled to retain his stock options under this scheme but a 30 year old with 10 years’ service would not.
Whilst Mr Ridgway couldn’t avail himself of the assistance now available under the new regulations, those employees adversely affected after 1 October 2006 by such rules still in existence can. Employment tribunals will have jurisdiction to hear age discrimination claims regarding unpaid bonuses on termination and there is no cap on the level of award of compensation they can make – unlike the £25,000 threshold that applies to breach of contract claims arising on termination of employment not covered by discrimination legislation.
Dig out and look at your policies and procedures now and come and join us on 4 September at our Age Discrimination 1 Year on Event. More details can be found by following the link:
http://www.macroberts.com/view_item.aspx?item_id=4465&list_id=list1-4432&list_index=0
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