Farrell Matthews & Weir v Hansen

It may bring a smile to some of your faces to learn that a firm of solicitors has lost a case brought by one of its employees.

Ms Hansen, a salaried partner at criminal law specialists Farrell Matthews & Weir (“the Firm”) had been with the firm since 1998. Whilst employees at the Firm had no express, contractual right to a bonus, bonuses were paid on an ad hoc, discretionary basis subject to an individual employee’s performance and the performance of the Firm as a whole.

Following Ms Hansen’s announcement that she was considering leaving the Firm due to concerns she had as to its financial viability and the fact that no bonus had been declared for 2001, in June 2002, the Firm confirmed that she was to be paid a £12,000 bonus for 2001/2002. The Firm advised her that the bonus was to be payable in twelve monthly instalments (of £1,000 each) but was subject to her not giving notice to terminate her employment. Ms Hansen was unhappy with the level of bonus and wanted to see the Firm’s accounts. This request was refused but 3 months of bonus payments (totalling £3,000) were paid to her immediately for the months of May to July 2002.

In a letter dated 1 July 2002, the Firm confirmed the bonus payment but added the condition that no further instalments of the bonus would be paid if notice was given (by either party) to terminate Ms Hansen’s employment for whatever reason, including redundancy. Ms Hansen disagreed with these terms. Since this effectively tied Ms Hansen into working for the Firm for a year in order to receive her bonus for the previous year, and given the fact that she had been exploring the job market in the intervening period, she refused to accept unless she could see the partnership accounts or until the condition was removed. At a meeting on 29 July 2002, she made it known that she was leaving the Firm to take up employment elsewhere. The Firm refused to pay the balance of the bonus payment that had been confirmed to her, on the basis that payment was subject to the condition that she remain in employment and not under notice.

At the Employment Tribunal, Ms Hansen successfully argued that the Firm’s actions in imposing such a condition amounted to a fundamental breach of contract entitling her to resign and claim constructive dismissal. Ms Hansen was also successful in her claim for unauthorised deduction from wages in respect of the Firm’s non-payment of the balance of the bonus monies owing to her (£9,000). However, the Firm appealed this decision on the basis that there was no such repudiatory breach of contract and that the discretionary bonus could not be defined as “wages” under the Employment Rights Act 1996.

The EAT held that the Tribunal was entitled to find that the imposition of a condition upon the payment of a non-contractual discretionary bonus (namely, that she would lose the remainder of her bonus if her employment terminated for any reason, including redundancy), together with the Firm’s failure to give Ms Hansen access to the Firm’s accounts upon which the decision to impose the condition was based, did amount to a fundamental breach of the implied term of trust and confidence entitling her to resign and claim constructive dismissal. Further, once an employer confirms to an employee the amount of a discretionary bonus which the employer is paying the employee, that bonus becomes part of the employee’s wages and so the employee becomes legally entitled to receive that bonus. Accordingly, the Firm’s appeal failed.

The key point to be drawn from this case is that once an employee is advised of specific terms under which a bonus is payable and a specific figure is attached to that bonus, the employee is likely to be entitled to that bonus under the original terms of grant. The bonus is also likely to be deemed “wages” under the Employment Rights Act 1996. Therefore, even if the bonus is labelled “discretionary”, the employer may be on thin ice if they then seek to impose new payment terms or rely upon the “discretionary” nature of the payment to justify non-payment of bonus.

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