This case considered the exercise of a discretion in deciding not to award a bonus to an employee.
Dr Humphreys was employed within a group of mining companies as a chief economist. His performance was judged on a sliding scale with no bonus being paid for performance graded as grade one and the maximum bonus being paid for performance graded as grade six. Dr Humphreys had typically been graded as grade four or five. In 2008 he was not awarded a bonus since his performance had been categorised as grade one. The employer justified this decision based on Dr Humphreys’ inaccurate forecasting (his June 2008 forecasts for Nickel prices were out by 22% for 2008 and 112% out for the last quarter of 2008) and the fact that the forecasting contributed to the company’s $555 million loss in 2008.
Dr Humphreys claimed he should have been awarded a grade five bonus of £572,000. He claimed that others within the field had made similarly inaccurate forecasts and that, through no fault of his own, the global financial crisis had made his forecasts inaccurate.
The High Court, following the test set out in Commerzbank v Keen, ruled against Dr Humphreys. It stated that the focus of the claim should not have been about whether his performance justified a bonus but rather whether the employer’s decision not to pay a bonus was irrational or perverse and that it was not for the court to decide what was important to a commercial employer. Given the poor performance of the individual and company in 2008 it was not irrational to award no bonus to Dr Humphreys.
The High Court also commented that the global financial crisis was not of significance in determining whether he should be awarded a discretionary bonus.
This case highlights the importance of taking care when exercising a discretion, but makes it clear employers are free to make the commercial decisions they think fit, as long as those are not irrational or perverse.