No Bonus for Employee who was Paid in Lieu of Notice

In Locke v Candy & Candy (2010 EWCA Civ 1350) the Court of Appeal held that where a bonus clause provided that the employee must be employed in order to receive his bonus, his dismissal 10 days before the bonus became due and payment under a payment in lieu of notice (PILON) clause meant he was not entitled to the bonus.

Mr Locke was dismissed and paid six months' salary in lieu of notice.  The PILON clause in his employment contract was brief and stated that the company can make a "payment in lieu of notice".  His bonus clause said that he was entitled to a guaranteed bonus of £160,000 after 12 months' employment, but that he must be "employed by the company in order to receive it".  He was dismissed 10 days before the bonus was due.  He was not paid the bonus and commenced proceedings in the High Court.  The employer argued that the bonus was not due as Mr Locke had ceased to be employed and the bonus clause was clear that no bonus was due in those circumstances.

The Court of Appeal held that he was not entitled to his bonus.  As the PILON clause itself was so brief, it was necessary to read the employment contract as a whole and this included the bonus clause which expressly stated that no bonus would be paid if he was not employed by the company. Had he worked notice instead of being paid in lieu of notice then the situation would have been different, but to disregard the bonus clause would be to deprive it of its meaning.

Although this case ultimately fell in favour of the employer, it highlights the importance of having well drafted PILON clauses in employees' contracts which are clear what payments will be made (and excluded) if the company elects to pay in lieu of notice.