Faieta v ICAP Management Services Ltd

An employer’s contractual discretion to place an employee on garden leave is subject to an implied term that it be exercised in good faith, rationally and consistently with the contractual purpose. The court applies the two-limb Braganza inquiry: whether relevant matters were considered and whether the outcome was so outrageous that no reasonable decision-maker could have reached it. The threshold is high and intensive scrutiny is limited where the discretion benefits the employer. Long garden leave and inevitable skill atrophy do not, without more, establish irrationality. A breach of trust and confidence requires action without reasonable and proper cause. Damages for hypothetical remuneration under a different future contract are unavailable, and a loss-of-chance claim requires a real and substantial chance.

The claimant, an inter-dealer broker employed under a fixed-term service agreement, was placed on garden leave after refusing to surrender a guaranteed minimum bonus. He remained on garden leave until his dismissal, which was admitted to be wrongful.

He claimed that the garden-leave decision breached implied terms requiring rational exercise of contractual discretion and preservation of trust and confidence. He also claimed bonuses and other remuneration for the balance of the fixed term, and damages for failure to mitigate. The defendant counterclaimed on the construction of the garden-leave clause.

1. Garden-leave bonus. The contractual provisions expressly excluded bonus entitlement during garden leave. The reference in the garden-leave letter to salary and benefits did not extend to bonuses, viewed in the context of the Service Agreement’s distinction between bonus arrangements and benefits. The garden-leave claim for bonuses therefore failed.
2. Implied rationality term. Clause 10.1 conferred a contractual discretion subject to an implied duty of bona fide and rational exercise. Applying Braganza v BP Shipping Ltd [2015] ICR 449, the court considered both whether the right matters had been taken into account and whether the result was so outrageous that no reasonable decision-maker could have reached it. The hurdle was high, with limited scope for intensive scrutiny.
3. The defendant’s central reason was the declining revenue of the desk and the mismatch between the claimant’s remuneration and the revenue generated. Although some reasons advanced in the defence were inaccurate, the decision-making process was not thereby irrational. The decision was commercially explicable and fell within the contractual discretion.
4. Trust and confidence. The defendant acted with reasonable and proper cause. The claimant knew that the decision arose from the desk’s poor performance and the proposed removal of his guaranteed bonus. No breach of a duty to give reasons was established.
5. Loss and counterclaim. The claimant was entitled to salary, pension contributions and guaranteed minimum bonus after the admitted wrongful dismissal, but not remuneration for the garden-leave period or discretionary and additional revenue bonuses. There was no real and substantial chance of earning those bonuses. A possible transfer to another group business could not support damages under Lavarack v Woods [1967] 1 QB 278. The defendant failed to prove inadequate mitigation. The counterclaim was dismissed.

First-instance decision. No prior appellate decision is stated in the judgment.