Bonuses and Pay in Lieu of Notice

[Thanks to Lionel Stride of Temple Garden Chambers for preparing this case summary]

The Court of Appeal has handed down its decision in Locke v Candy & Candy, upholding a decision that, where a bonus clause stipulated that an employee had to be "employed by the company in order to receive the bonus", he was not entitled to any bonus when summarily dismissed under the terms of a PILON (payment in lieu of notice) clause 10 days before it became due.

The Claimant, having been given 6 months payment in lieu of notice in accordance with the notice provisions in his contract, sought to recover a guaranteed annual bonus of £160,000, which only became payable after 12 months employment. He had been dismissed with immediate effect around 10 days short of 12 months under a laconic PILON clause permitting the Defendant simply "to make a payment in lieu of notice". The issue was whether this payment should include a bonus that he would still have received had he been asked to work his notice and/or put on gardening leave rather than being summarily dismissed. By a majority of 2:1 (with Jackson LJ dissenting), the CA held that the contract had to be constructed 'holistically'. Accordingly, as the PILON clause dealt only with termination and not quantification, the bonus clause (and its restricted operation) had to be applied when calculating the value of the payment.