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Badly Drafted Bonus Clause Results in Four Times Salary Shocker!


 

In the Court of Appeal case of GX Networks Ltd v Greenland a hard working employee smashed performance targets and landed herself a bonus equivalent to more than four times her salary.  The employer tried to argue that the bonus was ‘capped’ at far less than the amount claimed but was unsuccessful.

The Background

Ms Greenland worked for GX Networks Ltd as a sales executive.  She had the following clause in her contract of employment:

"Targets will be reviewed at the end of Q1, Q2 and Q3 to ensure that the target is challenging but achievable. The sales director has the discretion to cap an individual's Q4 bonus at 100% if required although such cases will be by exception only and require HR and Finance agreement."

This was following GX Networks recently introducing a new commission scheme.  The idea was that sales targets would be set following consultation with the employee and, if necessary, could be reviewed throughout the year.  This would enable the targets to be adjusted if they were too high or alternatively, (and less commonly) too low.

The commission itself was calculated according to a set formula.  If targets were exceeded, employees were rewarded with an enticingly named "overperformance commission" which was based on a much more generous calculation.

Hard Worker

Ms Greenland achieved 305% of her sales target.  She was no doubt pleased to discover that this entitled her to a windfall bonus of about four and a half times her basic salary!

Woops!

GX Networks, not unsurprisingly, sought to apply a cap to the bonus as if she had achieved only 130% of her target.

This would have allowed Ms Greenland a fraction of her "overperformance commission" and Ms Greenland sued for breach of contract in the High Court. 

The Decision

The Court of Appeal held that a contractual power to cap an overperformance bonus "by exception only" meant (almost literally) that it could only be capped in ‘exceptional circumstances’. 

The Court held that Ms Greenland's substantial overperformance on sales targets, coupled with the employer's decision not to review her targets, were not what it viewed as exceptional circumstances.

The Court of Appeal upheld Ms Greenland's claim for the full amount!   

For more information on employee contracts or for any queries on employment law please contact Verity Slater on 01872 241700 or to send her an email click here.
 

 



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