PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
An employer whose bonus scheme for sales was not tightly worded enough for the Court of Appeal was recently left to count the cost.
The employer hired a salesman, who proceeded to generate sales far in excess of what was anticipated and claimed very substantial bonuses as a result.
The sales bonus scheme was part of the salesman’s contract, which had a clause that allowed the employer to limit the bonuses paid during the year, but this provision was not invoked.
The employer sought instead to rely on another clause, which allowed the bonus to be capped at 100 per cent of salary. By concession, the employer did not apply the clause strictly and allowed a bonus of 130 per cent of salary. This, however, was still less than the amount the employee considered was due.
The Court of Appeal found that such clauses could only apply in exceptional circumstances and those in this case were not exceptional enough to warrant the application of a bonus cap. In the absence of a more tightly worded capping clause, the full bonus of more than £100,000 was payable.
For advice on all aspects of contracts of employment and bonus scheme wording, please contact us.