Guest comment: Termination is no excuse for not paying a bonus

Philip Landau, partner at London law firm Landau Zeffertt Weir, on why employees who've been sacked before bonus payday may soon have the law on their side.

You've worked all year and are anticipating a big bonus - you may even have been told the precise dimensions of the payout you'll receive. But one week before the zeros hit your bank account your employment is terminated. Suddenly, you're entitled to nothing at all.

Sounds like a horror story? Maybe, but it's one that's been all too common in the City of London. Employment contracts at most banks state that to qualify for payment an employee must be both in service and not under notice of termination on the date the bonus is paid out.

Unsurprisingly, therefore, employers have traditionally found it useful to terminate an employee's contract of employment prior to the bonus payment date (often due to restructuring, redundancy or poor performance) to avoid payment of the bonus.

Takacs (again)

In future, however, this nefarious practice may be outlawed. The impetus for change is coming from the case involving Oliver Takacs and Barclays Services Jersey. As I discussed in a previous column on eFinancialCareers.com, Takacs was employed as a trader and was entitled to a minimum bonus award in the first two years, as well as an additional award for each of the two years he achieved certain sales targets.

Instead, he was dismissed having not achieved the sales targets in either year - and paid no bonus. As a result, the disgruntled Takacs has brought a High Court action claiming that where a bonus payment is reliant upon continuing employment, there should be an 'anti-avoidance' term implied into his contract. This would place the employer under a duty not to terminate the contract simply to avoid its bonus obligation.

The case is still at the preliminary hearing stage and is due to be heard later this year. However, things look promising. Barclays' efforts to have Takacs' claim for an implied clause struck out at a preliminary hearing failed. At the full hearing, it looks like the Court may well uphold the existence of anti-avoidance terms in employees' contracts.

If such a term is upheld, employees who are unable to negotiate their bonuses upon exit may be able to seek significant sums for breach of contract, rather than having their compensation capped under the unfair dismissal legislation. Employers will therefore have to think twice about managing the termination of their employees which puts payment of their bonuses at risk.

Already, I detect a sea change by employers who are much more ready to discuss the bonus issues upon termination, rather than discount any discussion out of hand by relying on existing contractual provisions.

Feel free to contact Philip on pl@lzwlaw.co.uk or 020 7357 9494 for a free consultation on this or any other employment law issue.