The claimant had worked as a trader at Commerz Bank and claimed that a clause providing that the employee had to be in employment as at the date of the bonus to receive any bonus was an unreasonable exclusion clause. The claimant relied on section 3 Unfair Contract Terms Act 1977 (UCTA).

The Court held that it was clear that the claimant was not entitled to a bonus for the year in which the claimant had terminated his employment. The Court also found that the claimant could not rely on section 3 UCTA because an employee does not deal “as a consumer” with an employer in relation to a term for remuneration, as required by section 3. It would be inappropriate, artificial and unconvincing to extend this section to cover such an area.

The claimant also argued that the bank had breached an implied term not to exercise its discretion irrationally or perversely when deciding on the amount of bonus to be paid. In relation to this argument, the Court indicated that the burden was on the claimant to establish that no rational bank in the city would have paid him a bonus of less than his line manager recommended. Independent evidence would have to be presented to support the claim. It would require an overwhelming case to persuade the Court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much depends on the discretionary judgements of a bank in fluctuating market and labour conditions.

The outcome of this decision is that an employee cannot rely on UCTA to bypass a contractual clause requiring that he still be in employment in order to participate in a discretionary bonus scheme. The decision also shows the hurdles which must be overcome to prove that a bank’s discretionary bonus decision is irrational or perverse.

Commerz Bank AG v Keen