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    BONUS PAYMENTS : CONTRACTS OF EMPLOYMENT : INTERPRETATION : PAYMENTS IN LIEU OF NOTICE : CONSTRUCTION OF CONTRACT OF EMPLOYMENT : ENTITLEMENT TO BONUS PAYMENT AS PART OF PAYMENT IN LIEU OF NOTICE

    Where a contract of employment had included, under a clause concerning entitlement to a bonus payment after a year’s employment, the words “you must be employed by the company in order to receive the bonus”, and an employee had been dismissed after being employed for 11 months, his entitlement to the bonus had not crystallised and his claim for the bonus or any part of it as part of payment in lieu of notice was precluded.

    The appellant (L) appealed against a decision of the Master refusing his application for summary judgment and dismissing his claim against the respondent company (C) for payment of a bonus or the equivalent damages for breach of contract. L, a chartered surveyor, had been engaged by C, a design and development company, as director for a large building project. His employment had commenced on September 17, 2007. Clause 4.2 of the contract of employment provided that L would receive a guaranteed bonus of ?160,000 after 12 months’ employment. The last sentence of that clause stated that “you must be employed by the company in order to receive the bonus”. Clause 7.1 of the contract provided that C might terminate L’s employment by giving six months’ notice, and cl.7.5 that C reserved the right to make a payment in lieu of notice. On September 8, 2008, L’s employment was terminated and he was paid six months’ salary in lieu of notice. L was aggrieved by C’s failure to make the bonus payment and issued proceedings seeking payment of the ?160,000. By its defence, C contended that it had lawfully terminated L’s employment under cl.7.5 of the contract of employment and that his claim for a bonus payment was precluded by cl.4.2 as his employment had come to an end before the expiry of the 12-month period. L applied for summary judgment on his claim, and as the case depended entirely on the correct interpretation of the contract rather than any factual dispute, that application was treated as a trial of the action. The master, having found that L was not entitled to a bonus under cl.4.2, refused L’s application and dismissed his claim. It fell to be determined whether the last sentence of cl.4.2 of the contract restricted the operation of cl.7.5. L contended that cl.7.5 was a forward-looking clause which required an employer and the court to identify what sums would have been paid if the employee had remained in employment over the notice period, which included the bonus, and that cl.4.2 did not constrain the operation of cl.7.5. C submitted that the effect of the last sentence of cl.4.2 was clear and that payment in lieu of notice therefore concerned salary alone.

    HELD: (Jackson LJ dissenting) The issue for determination was the meaning of “payment in lieu of notice” under the contract of employment. Clause 7.5 was not helpful in that regard, in that it referred only to “a payment” which the employer might pay when employment came to an end but did not specify how that payment was to be calculated. The last sentence of cl.4.2 was directed to a situation where a person’s employment had ceased, and to limit its effect would be to deprive that sentence of its obvious meaning. L had been dismissed lawfully at a time before his entitlement to the bonus had crystallised. His payment in lieu of notice was in the nature of compensation for his sudden unemployment rather than remuneration, Delaney v Staples (t/a De Montfort Recruitment) (1992) 1 AC 687 HL  followed. Accordingly, cl.4.2 could not be ignored and had to be applied when a determination of payment in lieu of notice was made. Whilst L had thereby been deprived of a bonus to which he would have been entitled had he remained in C’s employment for a further two weeks, that was the consequence of what the parties had agreed. The master had been entitled to dismiss the claim.

    Appeal dismissed

    ANDREW LOCKE v CANDY & CANDY LTD (2010)

    “Lawtel”: 8.11.10