Contractual rules permitted employer to treat colleagues differently
How much discretion does an employer really have when deciding the level of a bonus? This issue was revisited recently in the case of Patural v DB Services.
A derivatives trader’s contract of employment stated he was entitled to be considered for a discretionary bonus. The factors to be used when determining the level of bonus, such as the bank’s overall performance and Patural’s individual contribution, were described in his contract and in the staff handbook. Both gave the employer a wide discretion - it could look at any number of factors it considered relevant - but the contract also stated that Patural’s pay would be treated in a “manner broadly consistent” with his peers.
He received a bonus of €1,275,685 which he considered too low as it only amounted to around 1 per cent of the profits he had generated, whereas two of his colleagues received bonuses that were a much higher percentage of their profits. He claimed this was a breach of contract, that the employer had acted perversely and irrationally in setting his level of award, and had breached the implied duty of mutual trust and confidence.
High Court
The court dismissed the claim. The colleagues’ bonuses, referred to by Patural, were higher because their contracts provided a clear formula for their payment, unlike Patural’s whose level of bonus was at the bank’s discretion. The reason for the set formula was explained by various circumstances that applied at the time each of the colleagues had been hired, when there was a pressing need to incentivise and retain their services. The court held this was a sound reason for the different bonus structure. The court said that for Patural’s claim to succeed, he would have had to show either that the employer had taken irrelevant factors into consideration when determining his bonus, or that the level of bonus was so outrageous that no reasonable employer could have reached it.
Comment
This case is a reminder that where a contract expressly states that an employer has discretion to decide on the amount of a bonus, it is very difficult for an employee to challenge the level of the bonus awarded. Claimants will only succeed if they can show the level of bonus was irrational or perverse and it requires an overwhelming case to persuade a court to make such a finding. Although Patural believed he had been unfairly treated, this was not sufficient to mount a successful claim.
The government has recently published a consultation response on the gender pay gap in the UK, which indicates that men receive higher bonuses than women on average. To tackle the gender pay gap, the government has just published draft regulations, which require private and voluntary sector employers with 250 or more employees to publish information about their gender pay gap from April 2018.
Significantly, bonuses will be included and that will mean publishing information about the differences between the mean bonus payments paid to men and women and the proportion of male and female employees that received a bonus. Employers may see an increase in legal challenges to bonus awards based on arguments of sex discrimination in the future.
Oliver Weiss is a senior associate in the employment team at Blake Morgan LLP
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