Courts Will Not Insert Implied Term That Eligibility Depends on Continued Employment at Payment Date to Receive Bonus

In Rutherford v Seymour Pierce Ltd 2010 EWHC 375 (QB), the High Court would not imply a contractual term that an employee must be employed and/or not under notice at the date of payment to be considered under a bonus scheme.

Mr Rutherford was summarily dismissed for poor performance by Seymour-Pierce Limited (Seymour) on 28 November 2007. Both parties entered into a compromise agreement which was expressed to be in full and final settlement of all claims between the parties other than Mr Rutherford's alleged entitlement to a last quarter bonus during his last year of employment. Mr Rutherford subsequently brought a claim for this payment in the High Court.

Mr Rutherford's employment contract provided that: (i) he was eligible to participate in the company's discretionary bonus scheme. Any bonus payments or amendments made to the scheme were at the discretion of the company and (ii) his employment was terminable by three months' prior written notice on either side. Seymour claimed that there was an implied term in Mr Rutherford's employment contract which was "... in order to be entitled to be considered for an award under the bonus scheme, an eligible participant has to be employed by and/or not under notice of termination of their employment (howsoever given) as at the date of payment of any award". The High Court refused to imply the term for the following reasons: (i) the term was not necessary in order for the contract to operate satisfactorily, (ii) the proposed term would give rise to a clear injustice, (iii) it could not be argued that the clause "went without saying" or that it was what the contract must have meant and (iv) the term might amount to a "mere trade custom" and so could not be implied by custom or usage. It therefore held that Mr Rutherford was entitled to the outstanding bonus.