When determining whether to award a discretionary bonus or not the
key issue for the Courts to look at is whether the employer’s decision
was irrational or perverse and not whether the employees performance was
sufficient to justify a bonus.
Legal Position
Where a bonus scheme is discretionary the employer does not have a
complete discretion over whether to refuse to award a bonus. The
employer cannot exercise his discretion in a way which is irrational or
perverse.
Case Summary
In this case an employee’s bonus was related to his performance, as
determined by the management board. During the 3 years preceding the
year in question the employee had received a good appraisal and
substantial bonuses. In the year in question the employee’s fixed term
contract came to an end and he received no bonus and he subsequently
brought a claim against his former employer for payment of a sum
equivalent to his bonus.
The employee was an economist and he was responsible for forecasting
nickel prices. In the year in question his forecasts were badly wrong,
although no more wrong than that of other leading economists, as a
result of the global economic crisis. As a result of this inaccurate
forecast the employer made a significant loss and the employee received
an unsatisfactory performance rating.
It was held that in the circumstances the employer’s decision not to
pay a bonus was not irrational or perverse. The employee was not
permitted to use the failings of other economists or the global economic
crisis as a justification for his entitlement to a bonus.
Commentary
It is interesting to note that the court held that the global
economic crash should be taken into account when determining whether the
employer’s discretion had been exercised rationally. This appears to
conflict with previous decisions of the Court of Appeal and the High
Court which had held that the global economic crisis was not relevant in
determining employees’ contractual bonus entitlement.
Resources
Humphreys v Norilsk Nickel International (UK) Ltd [2010] EWHC 1867 (QB)
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