Ostilly v Meridian Global VAT Services (UK) Ltd

A contractual discretion to award an annual bonus up to a stated maximum, tied to employee and regional performance, does not ordinarily require the employer to decide the award in a commercial vacuum. Unless clear contrary wording requires an exhaustive list, the employer's financial position and performance may be relevant considerations. The specified performance factors remain mandatory considerations.

The exercise of the discretion remains subject to Wednesbury-type rationality. A material error about the employee's performance, which may have obscured a case for differential treatment, requires reconsideration. A tribunal must not determine a dispositive factual issue which was neither pleaded nor fairly put to the affected party.

The claimant resigned after the respondent decided to pay no bonuses for 2017. He alleged breach of his employment contract and constructive unfair dismissal. His contract entitled him to a maximum annual bonus of 20% of salary, tied to his performance and that of his market region.

The Employment Tribunal rejected the claims. It held that the respondent could take account of its serious financial position when exercising the bonus discretion. It also held, in the alternative, that the claimant would have resigned unless paid a sum close to £55,000.

On appeal, the claimant challenged the construction of the bonus clause, the rationality assessment, a material error concerning his performance against target, and the alternative finding about why he would have resigned.

1. Appeal allowed in part. The Employment Tribunal was correct that clause 8 permitted the respondent to consider its own financial position and performance when deciding whether, and in what amount, to award a bonus. Proper construction came before implication of terms. The words tying the bonus to the claimant's and market region's performance made those matters mandatory, but did not make them an exhaustive list. In the commercial context, financial health, market conditions and the contribution to overall performance were inherently relevant. The contrary construction would have required clear language. The prior payment of bonuses above 20% did not vary the contractual ceiling; such excess payments were ex gratia.

2. The Tribunal's conclusion that the nil award was rational could not stand. It mistakenly treated forecast turnover of €3.25 million as the forecast profit. The claimant's business achieved about 94.5%, rather than just over 50%, of its profit target. That error could materially affect the assessment of whether the claimant should have been treated differently from other senior managers, and of the significance of his previous bonus expectations. The contractual-discretion issue was therefore remitted.

3. The alternative finding that the claimant would have resigned unless paid close to £55,000 was procedurally unfair. It disposed of the constructive-dismissal claim on an issue not pleaded by the respondent and not fairly debated in evidence or submissions. Applying Chen v Ng, [2017] UKPC 27, the Tribunal could not draw that inference without giving the claimant a fair opportunity to address it.

4. The matter was remitted to a differently constituted Employment Tribunal. The original primary findings of fact and the binding construction of clause 8 were preserved. Only the lawfulness and rationality of the bonus decision, and, if pursued, the issue whether the claimant would have resigned in any event, were to be reconsidered.

• Employment Appeal Tribunal: appeal allowed in part. The claims were remitted to a differently constituted Employment Tribunal.
• Employment Tribunal: Employment Judge Grewal, sitting at London Central, dismissed the breach-of-contract and constructive-unfair-dismissal claims in a reserved judgment dated 12 February 2019.