In Locke v Candy and Candy Limited the Court of Appeal considered an employee’s entitlement to a bonus when he was paid in lieu of notice. The Claimant had been employed to carry out a specific project. As part of his contract of employment he was entitled to a bonus of £160,000 after 12 months’ employment. The terms of the contract made it clear that the individual “must be employed by the company in order to receive the bonus”. The contract provided for a notice period of six months. It also gave the employer the right to make a payment in lieu of notice, although the nature of this payment was not defined.
When the employee was two weeks short of 12 months’ service, the employer terminated his employment and indicated that he would be paid 6 months’ wages in lieu of notice, as allowed by the contract. The employer did not pay the employee any bonus on the basis that he was not employed by them at the time it became due. The individual therefore brought an action for payment of the £160,000 bonus, arguing that he was entitled to any sum which he would have received, had he served his notice period.
The Court of Appeal, by a majority, decided that the contract was clear and unequivocal. One of the judges dissented on the basis that the vagueness of the definition of payment in the contract meant that the individual should be entitled to whatever payment would have been due to him had his employment been terminated with notice.
Although the employer escaped liability here, the case serves as a reminder to employers of the importance of good drafting and clear wording in contracts of employment, particularly in relation to payment in lieu of notice clauses and bonus provisions.