You may remember Keen v Commerzbank AG, in which the Court of Appeal held that the Bank had not exercised its discretion in an irrational or perverse manner by awarding a bonus less than that advocated by Mr Keen's line manager in 2003 and 2004 nor by refusing to award a bonus in respect of 2005 (when Mr Keen was no longer employed by the Bank). This decision was applied by the High Court in Ridgway v JP Morgan Chase Bank National Association in which an employee who had been on sabbatical for most of the bonus year failed in his claim that the Bank's decision to award him a nil bonus was irrational and perverse. The employee's claims for constructive dismissal and compensation in relation to deferred compensation also failed.
Earlier case law (such as Clark v Nomura) established that a term may be implied into a contract of employment that the employer shall not exercise its discretion in relation to bonuses in an irrational, perverse or arbitrary way. However, this latest High Court case confirms the point which arose out of Keen v Commerzbank, namely that an employee has an extremely high hurdle to cross to persuade the court that no rational employer would have exercised their discretion in the way that they did. Those individuals making decisions about bonus awards can draw comfort from this recent line of authorities which seem to suggest that an exceptionally strong case would be required to demonstrate a breach of contract on grounds of irrationality or perversity. Perhaps, the greater risk is that a successful case will be mounted on grounds of unlawful discrimination or by reference to the "anti-avoidance" implied term that an employer will not terminate a contract in order to avoid an obligation to make a payment to the employee (as was argued in Takacs v Barclays Services Jersey Ltd).