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Are all Employment Bonuses Payable?

Bankers’ bonuses continue to generate much comment in particular in certain parts of the press. The entitlement to a bonus is however a contractual issue and the parties to the contract are the employer and the employee. The view of the public is irrelevant. Although there is legislation to provide a national minimum wage, there is no legislation to cap a maximum wage.

It is however not only bankers who may be eligible to receive substantial bonuses and not all bonuses are payable.

In the case of Locke v Candy & Candy Limited, the Court of Appeal considered a claim for an unpaid bonus following the termination of employment a few days before a guaranteed bonus would have become payable.

On termination of employment, it is not unusual for an employer to opt to terminate the employment forthwith and to pay the employee in lieu of notice. Some contracts of employment contain what is known as a PILON clause which reserves to the employer the right to terminate the employment on making a payment in lieu of notice at the sole discretion of the employer.

In the case of Locke v Candy & Candy Limited, there was such a contractual PILON clause which the employer invoked. Mr Locke was paid his 6 months’ salary in lieu of notice but his employer refused to pay him his bonus of £160,000. Mr Locke sued for the bonus. The Court considered in detail the correlation between the PILON clause and the bonus clause which provided as follows:-

“You must be employed by the company in order to receive the bonus.”

The employer argued that the employment had terminated a few days before the bonus would become payable and that in those circumstances, Mr Locke was not eligible. The High Court concluded that he had no entitlement to a bonus as his employment had been terminated. Mr Locke appealed to the Court of Appeal who decided by a majority of 2:1 that because the contract provided “You must be employed by the company in order to receive the bonus”, Mr Locke did not have a claim in respect of the bonus. In consequence, Mr Locke was deprived of a bonus to which he would have been entitled had he completed one year’s service which he almost had. That however was the consequence of what the parties had agreed.

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