Rutherford v Seymour Pierce Ltd
| Jurisdiction | England & Wales |
| Judge | MR. JUSTICE COULSON |
| Judgment Date | 11 February 2010 |
| Neutral Citation | [2010] EWHC 375 (QB) |
| Court | Queen's Bench Division |
| Date | 11 February 2010 |
| Docket Number | Case No: TLQ/09/0637 |
[2010] EWHC 375 (QB)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
St. Dunstan's House
133-137 Fleet Street
London EC4A 1HD
Before: Mr. Justice Coulson
Case No: TLQ/09/0637
MR. ADAM SOLOMON (instructed by Synergy Employment Law Solicitors) for the Claimant
MR. MARTIN PALMER (instructed by Messrs. Memery Crystal LLP) for the Defendant
Hearing Dates: 8 th -11 th February 2010
Approved Judgment
Digital Transcription of Marten Walsh Cherer Ltd., 1 st Floor, Quality House, 6–9 Quality Court, Chancery Lane, London WC2A 1HP Telephone: 020 7067 2900 Fax: 020 7831 6864 DX: 410 LDE Email: Website:
MR. JUSTICE COULSON:
INTRODUCTION
The claimant, Mr. Malcolm Rutherford, was employed by the defendant, Seymour Pierce Ltd (“SPL”) for four and a half years between May 2003 and November 2007. SPL is a London-based investment bank and stockbroker providing advice to companies and institutions and raising finance for them. For most of his employment Mr. Rutherford was an institutional salesman. His employment was governed by a written contract of employment which he signed on 3 rd May 2003.
In May 2007 Mr. Rutherford was promoted to Head of Institutional Sales. He continued in that role until 28 th November 2007 when he was summarily dismissed without notice. In subsequent proceedings in the Employment Appeal Tribunal SPL admitted that Mr. Rutherford had been unfairly dismissed on procedural grounds because he had been entitled to three months' notice under his contract. Those proceedings were eventually the subject of a Compromise Agreement dated 28 th May 2008 which was in full and final settlement of all claims between the parties with one exception: Mr. Rutherford's claim relating to the non-payment of his alleged entitlement to a bonus for the last quarter of the financial year that had ended on 13 th September 2007. That claim for the unpaid bonus is the subject of these proceedings.
ISSUES
The first issue arises in connection with the contract of 3 rd May 200It is SPL's case that there was an implied term of that contract that:
“… 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.”
Although not originally pleaded as an implied term, SPL accept that this term was not expressly part of Mr. Rutherford's contract of employment. However, for a variety of reasons they now allege that the term was implied into that contract. I address that issue in Section 3 below.
If I conclude that there was such an implied term, then that would be the end of Mr. Rutherford's claim for a bonus. If, on the other hand, I conclude that there was no such implied term, then I must go on and consider the second set of issues which arise out of the failure to pay Mr. Rutherford a bonus for the last quarter of the financial year ending in September 2007. Importantly, that includes a consideration of Mr. Rutherford's allegedly poor performance during his five months as Head of Institutional Sales in that financial year.
Accordingly, I deal in Section 4 below with the relevant law relating to bonus claims of this type and set out the evidence and the relevant facts in Section 5. Thereafter, in Section 6 below, I analyse whether or not Mr. Rutherford was entitled to the payment of a bonus.
The final issue, which only arises if I reject the implied term and I conclude that Mr. Rutherford was entitled to a bonus, is the quantification of the appropriate bonus. I deal with that in Section 7 below. I ought at the outset to express my gratitude to both counsel for their assistance on these issues.
WAS THERE AN IMPLIED TERM AS ALLEGED?
The Contract
Mr. Rutherford's Contract of Employment was signed by him on 3 rd May 2003. The relevant express terms were clauses 5 and 8 which were in the following terms:
“5. Bonus
On satisfactory completion of your probationary period you will be eligible to participate in the Company's discretionary bonus scheme. Any bonus payments or amendments made to the scheme are at the discretion of the Company.
…
8. Notice
Your initial employment with the Company will be on the basis of a probationary period of three months during which your employment may be terminated with one month's prior written notice on either side. The Company reserves the right to extend your period of probation.
On satisfactory completion of your probationary period your employment may be terminated with three months' prior written notice on either side …”
In addition, the parties were agreed that SPL's disciplinary procedure and rules were set out in the Staff Handbook. The relevant extract is in the following terms:
“Investigation:
Whenever a disciplinary issue arises the employee's manager, together with HR must investigate it promptly and fully and as part of the investigation the employee will be interviewed. The results of the investigation will then determine what disciplinary action, if any, is taken. …
Stages of procedure:
If following an investigation it is considered on a balance of probability that a misconduct is justified, that warrants more than informal action, then a disciplinary hearing will be arranged. There are three important stages to the procedure.
Stage 1: Written Warning
If an employee's conduct or behaviour is alleged to have fallen below acceptable standards to the extent that a first written warning is appropriate.
Stage 2: Final Written Warning
If an employee's conduct or behaviour is alleged to be so serious as to warrant any one warning before dismissal or there has been a failure to improve or change behaviour following a current previous warning.
Stage 3: Where failure to meet standards set in previous stages or gross misconduct is involved which can result in dismissal without previous warnings.”
In considering whether the term set out in paragraph 3 above was implied into this Contract, I must consider the Contract in the light of all relevant background: see Investors Compensation Scheme Ltd. v. West Bromwich Building Society [1998] 1 WLR 896. Two matters were relied by SPL in this connection: the nature and purpose of the Bonus Scheme that they operated, and what they said was the widespread acceptance in the City of London of terms such as the one alleged here. The former was not particularly controversial; the latter very definitely was.
(a) SPL's Bonus Scheme
SPL's bonus scheme worked in this way. 40% of the commission earned by SPL's employees and directors was set aside as the pool out of which bonuses would be paid. Half of that pool was distributed at the end of each of the first three quarters: namely, Q1 (October, November and December); Q2 (January, February and March); and Q3 (April, May and June). The remainder of the pool was distributed following the completion of Q4 (July, August and September), which marked the end of SPL's financial year. Thus, what was distributed at the end of each financial year was the other half of the pool referable to Q1, Q2 and Q3 and all of the pool referable to Q4. Whilst the other three bonus payments were made about two months after the end of the quarter to which they related, the payment for Q4 was not usually made until the week before Christmas, principally because SPL's accounts had to be signed off before a final decision could be made as to how much bonus should be paid.
It is plain, and the witnesses agreed, that the principal purpose of the bonus scheme was to act as an incentive to the employees and the directors. It was retrospective, because it related to commission that had been earned in the past, and was not based on any future prospects of commission. The bonus scheme also encouraged loyalty, and I accept Mr. Solomon's submission that, in this connection, loyalty was a two-way process: the expectation of being paid a bonus operated to keep the employee loyal to SPL, but it was also a vehicle by which SPL could demonstrate their loyalty to and appreciation of those who had worked hard to earn SPL's significant commission.
(b) The Allegedly Widespread Use/Acceptance Of This Term
It was SPL's case that an important part of the background to Mr. Rutherford's contract of employment, and clause 5 in particular, was the widespread use of and acceptance in the City of London of terms such as the one in issue here. In my judgment this part of SPL's case has not been made out.
Although Mr. Feigen, SPL's former Managing Director, asserted that such a term was commonly accepted, he offered no evidence to support that view. He admitted in cross-examination that, beyond his assertion, there was no evidence for the allegedly widespread use of the term, and he said that he was not aware of other companies or institutions that utilised the implied term for which SPL now contended. In fact no contracts in use at other institutions were relied on during the course of the evidence, and no expert or third party evidence on any kind was tendered on this issue. I note that the bonus terms under consideration in Horkulak v. Cantor Fitzgerald International [2004] EWCA Civ. 1287 and Clark v. Nomura International Plc [2000] IRLR 766, which were both cases involving City institutions, were different in both form and substance. Neither of them encompassed the sort of wide-ranging exclusion contended for here.
Mr. Rutherford's evidence was that, whilst it was common for banks and other City institutions not to pay a bonus to an employee who had voluntarily resigned before the date that the bonus was distributed, the same was definitely not true in situations where the employee had been sacked or been given notice by his employer. He...
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