Employers will want to avoid paying a bonus when an employee has left their job, but a recent court decision has held that it could not be implied into an employee's contract that a bonus was only payable if the recipient is an employee at the date of payment.
In Rutherford v Seymour Pierce Ltd, R was employed in a senior position by SPL until he was summarily dismissed, allegedly for poor performance. SPL accepted that R had been unfairly dismissed and entered into a compromise agreement, in full and final settlement of all claims between the parties other than his alleged entitlement to a bonus for the last quarter of his last year of employment.
R subsequently brought a claim for his bonus payment in the High Court when this was not paid to him. There was nothing express in R's employment contract about the payment of a bonus being linked to him remaining an employee but SPL claimed that it was an implied term of R's contract that '... in order to be entitled to be considered for an award under the bonus scheme, an eligible participant has to be employed by and/or not under notice of termination of their employment (howsoever given) as at the date of payment of any award', a clause which appeared expressly in the contract of some of R's colleagues.
The Court did not allow this term to be implied into R's contract, on the basis that he had already received bonuses that year and everyone else of a comparable position in the firm had received one and so, in the absence of a written contractual term about eligibility, it was 'manifestly unreasonable' to not make a payment to him.
Best Practice
In light of the decision, it is important for employers to ensure that bonus clauses in their employee's contracts are clear on issues of eligibility and explicitly state any eligibility criteria. In the absence of an express clause addressing what will happen to a bonus payment when an employee leaves, avoiding payment will be difficult.
The judgment also confirmed that even where a bonus is discretionary, as it was here, an employer must exercise its discretion reasonably.
If you require advice on bonus issues, 
please contact Caitlin Anniss on 0117 314 5264.
This publication is for guidance only. Reliance should not be placed upon it and nor should action be taken, without obtaining advice in respect of the specific circumstances applicable. We will be pleased to provide such advice or assistance.
