Shikha Gupta v DB Group Services Limited

An employer exercising a contractual discretion over a discretionary bonus must act rationally and in good faith, take account of legally relevant considerations, and exclude irrelevant considerations. The court reviews both the decision-making process and the outcome, but must not substitute its own assessment of weight.

Contractual and policy documents must be read together, with the contract prevailing in any conflict. In a regulated commercial organisation, affordability may properly be treated as the paramount consideration in determining whether a discretionary bonus pool should exist. Where affordability has been rationally determined to prevent payment, individual performance, alleged informal assurances and special circumstances need not be given separate weight. A general explanation of a firm-wide bonus decision may also satisfy any obligation to provide reasons.

The claimant, a former director employed in the defendant bank’s Non-Core Operations Unit, claimed damages for breach of contract arising from the defendant’s 2016 variable compensation decision. She received Group Variable Compensation but no Individual Variable Compensation or further off-cycle award.

Her case was that managers had assured her that she would be treated fairly, looked after and generously rewarded for completing the accelerated closure of the unit. She alleged that the defendant failed to take those assurances, her exceptional performance and the unit’s special circumstances into account, and acted irrationally and without adequate reasons.

The court considered whether the assurances were given, whether they were legally relevant to the exercise of the contractual discretion, whether the decision was irrational or inconsistent with the contractual purpose, and what damages would have followed.

1. Claim dismissed. The claimant failed to prove that the alleged compensation assurances were given. The evidence was vague and inconsistent, and the contemporaneous documents and telephone transcripts showed aspirations and uncertainty rather than assurances capable of reasonable reliance.
2. The contractual discretion was constrained by both limbs of the Wednesbury test, applying Braganza v BP Shipping Ltd [2015] UKSC 17. The first limb concerned whether relevant matters had been considered and irrelevant matters excluded. The second concerned whether the outcome was one which no reasonable decision-maker could have reached. The court could determine what considerations were legally relevant, but the weight assigned to them remained for the employer.
3. The compensation policies were not incorporated into the contract, but were relevant guidance as to how the discretion was to be exercised. The contractual documents prevailed in any conflict. Read together, they made clear that variable compensation was discretionary and that company performance included the company’s ability to afford payment.
4. Affordability could be treated as the paramount consideration. The defendant was a commercial bank subject to substantial regulatory scrutiny and had conducted a careful and documented assessment of its financial position, regulatory constraints, bonus pool and retention options. It was rational to determine that Individual Variable Compensation was unaffordable and to apply that decision consistently to employees of the relevant seniority.
5. Even if assurances had been given, they would not have required a different result. The alleged assurances were imprecise and made against a known background of financial difficulty. The claimant’s performance and the special circumstances of the NCOU therefore did not have to be separately weighed once affordability had rationally excluded payment.
6. The defendant had provided sufficient general reasons through firm-wide communications and intranet materials explaining the financial position, the absence of an Individual Variable Compensation pool and the payment of Group Variable Compensation. No separate individual reasons were required.
7. Any alternative assessment of damages would have produced no Individual Variable Compensation because affordability would have outweighed the other factors.