Bonuses have become an increasingly important part of an employee's remuneration package. A recent Singapore case considered whether an employee is entitled to claim a bonus as part of the damages for his wrongful dismissal.
In early 1997, Scott Latham entered into a contract of employment with Credit Suisse First Boston (CSFB). The relevant sections of the employment contract were:
"Bonus: In addition to your salary, a bonus may be paid to you at the end of each calender year, based on company profitability and your performance during the year. The first bonus for which you will be eligible for consideration will be for calendar year 1997.
Notice Period: Either party may terminate the employment by giving one month's notice in writing. During probation, the notice period will be one week. However, should the reason for the company terminating your employment be gross misconduct of any type, then no notice will be given."
On September 17 1997 (which was after Latham's probation period), Latham was asked to leave CSFB. In the course of negotiations on how Latham was to be compensated for his dismissal, CSFB issued a letter dated October 15 1997 purportedly terminating Latham's employment by giving him one month's remuneration in lieu of notice. No bonus payment was made.
Latham took the view that CSFB had acted in bad faith in dismissing him and that his dismissal was wrongful. He commenced this action for a bonus payment (to be determined) to be made to him as part of his damages for wrongful dismissal. Latham's claim was based on the loss of his chance to earn the bonus, that he would otherwise have had but for his termination.
The High Court substantively dismissed Latham's claim, although it held that Latham's dismissal was wrongful. The basis for the High Court's finding of wrongful dismissal was that CSFB had failed to properly give Latham the one month's notice required under the employment contract. The judicial commissioner hearing the case was of the opinion that Latham's services were terminated on September 17 1997 and not October 15 1997, the date of CSFB's termination letter.
On the issue of damages for the wrongful dismissal, the judicial commissioner felt that the payment of one month's remuneration by CSFB was adequate. Latham's claim for the bonus payment was dismissed.
The Court of Appeal upheld the judicial commissioner's ruling. In reaching its decision, the appellate court followed the general contractual principle that damages for a breach of contract are awarded as compensation to the plaintiff for the loss that he or she suffers as a result of the breach. The contract breaker is not obliged to do more than that which he or she is legally obliged to do.
On the facts of this case, unless the bonus had been expressly guaranteed, an employee in Latham's position could not claim to be legally entitled to a bonus, the granting and quantum of which was entirely at the discretion of the employer. While Latham may have reasonably expected to have been paid a bonus if he had remained in the employ of CSFB, there was no obligation on CSFB to pay this sum even if Latham had remained in their employ. CSFB was therefore not obliged to pay any bonus to Latham as part of the damages payable for his wrongful dismissal.
The court's ruling is significant because it defines and restricts an employer's liability for wrongful dismissal in a time when share-option schemes, bonuses and other non-traditional forms of remuneration are fast becoming the norm.
For further information on this topic please contact Ajay Advani at Drew & Napier by telephone (+65 531 2456) or by fax (+65 532 7149) or by e-mail ([email protected]). The Drew & Napier web site can be accessed at www.drewnapier.com.
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