Locke v Candy and Candy Ltd

Where an employment contract permits summary termination by making a payment in lieu of notice but does not state the amount, the payment must be determined by construing the contract as a whole. The court should not assume that it necessarily reproduces all remuneration that would have accrued during the notice period. A term requiring the employee to be employed to receive a bonus may govern entitlement where employment ends through a payment in lieu of notice. On the natural reading of this contract, that condition applied when the bonus fell due and excluded the bonus from the payment. The appeal was dismissed.

The claimant, a development director, was summarily dismissed shortly before a guaranteed £160,000 bonus became payable. His contract entitled him to six months’ notice, permitted termination by payment in lieu of notice, and stated that he must be employed to receive the bonus.

Master Eyre treated the summary judgment hearing as the trial and entered judgment for the employer. The claimant appealed. The central issue was whether the employment condition in clause 4.2 limited the payment due under clause 7.5.

The appeal was dismissed by Arden LJ and Pill LJ, with Jackson LJ dissenting.

1. Majority reasoning. Clause 7.5 merely required a payment in lieu of notice and did not specify its measure. Its meaning therefore had to be identified by construing the employment contract as a whole. Arden LJ rejected any preconception that such a payment must equal all remuneration the employee would have received during the notice period.
2. The majority treated the fourfold categorisation in Delaney v Staples [1992] 1 AC 687 as consistent with that approach. A payment made on summary termination under an express payment-in-lieu clause ends the employment and is not remuneration for work done under the contract.
3. The sentence requiring the claimant to be employed to receive the bonus referred to his status when the bonus was actually payable, rather than to the period during which it accrued. Read naturally with the contract as a whole, it applied where the employer exercised clause 7.5. Because the employment had ended, the claimant had no entitlement to the bonus under clause 4.2 and no corresponding claim under clause 7.5. There was no breach of contract.
4. Commercial arguments pointed in both directions and could not displace the contractual construction. The question concerning section 86 of the Employment Rights Act 1996 was not relied upon and did not affect the result.
5. Dissent. Jackson LJ considered that the unqualified payment-in-lieu wording required the employer to pay the sum that would have been due on notice or garden leave, including the bonus. He regarded the final sentence of clause 4.2 as preventing a pro rata bonus under that clause, rather than limiting clause 7.5. The formal order was: appeal dismissed.

1. Court of Appeal (Civil Division): By a majority of Arden LJ and Pill LJ, the appeal was dismissed. Jackson LJ would have allowed the appeal.
2. High Court of Justice, Queen’s Bench Division: Master Eyre entered judgment for the respondent after the parties agreed that the summary judgment hearing should be treated as the trial.