Bonuses are often the subject of dispute. This is because most contracts don’t set out when a bonus will no longer be payable.

A departing consultant may feel they have already earned a bonus that is payable at a date after they have left. The recruiter may not want to pay a significant financial reward to a consultant who is no longer working for it and indeed, who may already be working for someone else.

So, can a recruiter withhold bonus from a consultant who has left?

In the case of Rutherford v Seymour Pierce Ltd the High Court had to answer this question. Mr Rutherford was employed by Seymour Pierce, a London-based investment bank, as the head of institutional sales until his dismissal for poor performance. Seymour Pierce conceded that Mr Rutherford’s dismissal was unfair and entered into a compromise agreement with him to settle his claims. Importantly, the compromise agreement did not include a waiver of Mr Rutherford’s legal right to bring a claim in respect of any unpaid bonus entitlement for the last quarter of his employment. Q4 bonus was not usually paid until a few months after the date when Mr Rutherford’s employment terminated.

Mr Rutherford brought a claim in the High Court for the payment of his bonus for the last quarter of his employment. 

Mr Rutherford’s contract stated that after his probationary period, he was entitled to join SPL’s discretionary bonus scheme but was silent as to his entitlement to a bonus upon termination of his employment. Seymour Pierce argued that it was an “implied term” of Mr Rutherford’s employment that he needed to remain an employee and/or not be under notice to receive a bonus payment. Later contracts between Seymour Pierce and its employees had clear provisions dealing with the payment of bonus if employees are sacked or serving notice.

The High Court refused to imply a term into the bonus contract that Mr Rutherford must remain in employment and not be under notice to be able to receive his bonus.  The court ruled the term would be unreasonable as it would allow Seymour Pierce to sack an employee the day before a bonus was payable in order to avoid having to make the payment.  The court was swayed by the fact that later contracts expressly dealt with the payment of bonus on termination.  It did not go without saying that bonus would not be paid on termination as if this was the case, Seymour Pierce would not have felt the need to specifically set this out in later contracts.

This decision emphasises the importance of clearly documenting when bonuses will and won’t be payable (although, be aware that even these payment provisions may themselves be open to challenge). If they will not be paid to consultants serving out notice or who have already left, this should be clearly stated. If it is not, consultants will be more ready now to claim for unpaid bonus, particularly where it can be shown to relate to services already rendered. 

Terms which seek to exclude the payment of bonus to consultants after termination will be difficult to agree. However, it is better to include such a provision from the outset than to try and introduce it once the relationship is up and running. It is important to take a consistent approach to any bonus payments post termination as treating Peter more favourably than Paul could lead to accusations of discrimination and the unreasonable exercise of any discretion to pay bonus. The basis on which any bonus decision is reached should always be clearly documented.

Kevin Barrow is a partner with Osborne Clarke and leads a team specialising in advising the recruitment sector