MacLeod v Mears Ltd

A bonus arrangement may be contractually binding even where it creates an entitlement to a share of a team bonus pool and distribution within the pool remains discretionary. Contractual documents and their accompanying budgets must be construed together and against the relevant factual background. A more favourable incentive for transferred projects applied only during the period specified by the agreement. Where approved budgets covered a defined period, the court will not readily infer an open-ended bonus commitment. A general reference to benefits or salary limits does not incorporate a bonus cap unless the cap formed part of the agreement. A later variation requires proof of agreement; discussions or proposals are insufficient.

Duncan Macleod claimed more than £2 million from his former employer, Mears Ltd, under a profit-sharing bonus arrangement agreed after Mears acquired Makers’ social housing division and Mr Macleod transferred to Mears. The alleged agreement was recorded in terms of agreement and accompanying spreadsheets and budgets approved by Mears’s managing director.

The trial concerned whether a binding agreement existed, whether the bonus was personal or team-based, the duration and rate of the incentive, whether a bonus cap applied, and whether the arrangement was later varied or superseded.

1. Contractual agreement. The terms of agreement and accompanying documents formed a binding contractual bonus arrangement. Mr Macleod provided consideration by accepting a new role with additional responsibilities. The arrangement was not void under regulation 4(4) of the Transfer of Employment (Protection of Undertakings) Regulations 2006, because the transfer was not the sole or principal reason for the variation. It reflected the new role and responsibilities.
2. Team bonus. The references to incentives being identified separately per team, the reference to the management team, the accompanying team documents, and the known operation of Mears’s bonus schemes showed that the arrangement concerned pooled bonuses for Mr Macleod’s and Mr Webb’s teams. It did not give them an individual entitlement to the whole bonus.
3. Rates and duration. The 75p-in-the-pound allocation for Keller Liability projects applied only up to April 2008. From April 2008, clause 10 governed the arrangement, including the £100,000 retention and subsequent 50/50 split. The approved bonus arrangements applied only to the budgets covering November 2007 to December 2008. They created no open-ended commitment for later periods.
4. Bonus cap. The agreement did not incorporate a 100 per cent salary cap. The document referred to in the benefits provision was the Mears Group Benefits Proposal, and neither it, the terms of agreement, nor the accompanying documents incorporated a cap into the agreed bonus-pool calculation. A cap might nevertheless be relevant to discretionary distribution.
5. Later variation. Mears failed to prove that the arrangement was varied or superseded. Later proposals for divisional pooling were rejected or remained insufficiently evidenced, and there was no adequate proof of an agreed variation with Mr Miles.
6. The court made findings on liability and directed the parties to consider their implications for the claims.