In the recent case of Khatri v Cooperatieve Centrale etc. an individual was employed under a written contract which included provision for a performance-related bonus to be paid each year-end calculated on the basis of a formula. The claimant employee was sent a letter containing new contract terms including a provision that bonuses would now be payable entirely at the employer's discretion rather than on a performance basis. He did not sign the letter, nor was he pressed to do so and his duties did not change. At the year-end he was made redundant and he sought a swift "summary judgment" in court on the basis of relevant documents for payment of the (substantial) performance-related bonus.

The employer argued that the claimant could not be entitled to judgment for this sum without the court hearing all relevant circumstantial evidence. Further, it was suggested that the employee had, by his conduct, accepted a variation of his contract and that his only entitlement, therefore, was to a discretionary bonus, which the employer was entitled not to pay.

The Court of Appeal rejected both of these arguments and granted the employee summary judgment for the full amount of the performance–related bonus.

Points to note –

  • Where a fuller investigation of the facts would not alter the evidence available and would not therefore affect the outcome of the case, a court may decide a case on documents alone. This case is a reminder that this procedure may be used to enforce rights under an employment contract.
  • In most circumstances, contractual variations must be agreed by employer and employee. The employer in this case lost because it had not effectively varied the employee's contract terms. The employer's failure to follow up on their letter was costly.
  • The Court of Appeal acknowledged the employer's argument that an employee can be taken to have agreed to a contract variation simply by continuing to work without complaint. However, this can only be the case where the employee accepts, for example, new duties or a cut in pay, without protest. In a case like this, where the employee's conduct was entirely consistent with the original contract continuing, the employer could not argue that he had impliedly accepted the new terms.

Contractual termination date

In the case of Geys v Société Générale, the employer handed an employee a letter which stated that his contract was terminated 'with immediate effect'. The High Court ruled, however, that the contract was only effectively terminated some five weeks later. This was particularly problematic for the employer as, in the interim period, the employee had become entitled to payment of a year-end bonus.

Contractual documentation seemed to entitle the employer to terminate the contract of employment without notice, provided that it made a payment in lieu of notice (PILON). However, as no payment was actually made until five weeks after the employee was handed the termination letter, the court decided that the effective termination date was the payment date.

Points to note –

  • The employer's right to terminate and make a PILON was not mentioned in the employee's contract, but only in the Staff Handbook. It was made clear in the Staff Handbook that, where the terms of the two documents conflict, the terms of the contract would prevail. The employee argued that this meant that the employer had no right to terminate and make a PILON because this right was not mentioned in the contract. The court disagreed; the Handbook only qualified the terms of the contract, it did not conflict with them. Employers should check their documentation to ensure that different documents can be read consistently with each other and that they are all up to date.
  • The employer lost the case because it had not made it clear to the employee that it was exercising its right to terminate with immediate effect by making a PILON. In fact, it had failed to make the payment at the appropriate time. Again, employers should check their termination procedures and ensure that they are properly implemented.