Signing an Employment Contract - Case Study Example

CIVIL LAW - LEGAL OPINION Munro Securities Limited v Roughton, Signing an employment contract is one of the major characteristic of UK employment terms. According to section 1 of the 1996 Employment Rights Act, the contract must be given to the employee eight weeks before he starts working and it must provide a clear guide on what he must expect from his job (Evans and Sadler, 2001). The UK law allows employers to exercise discretion on their administration of bonuses to their employees (Financial Services Authority, 2010). According to the Walker Review, all payments had to be linked to performance (International Center for Financial Regulation, 2009). Moffatt (2007, 63) states that an employer should ‘be obliged to pay that bonus in accordance with the agreed upon terms’. In the UK Munro Securities Limited v Roughton case, the employer and the employee both entered into a contractual agreement, but some errors in the allocation of the bonus later resulted in a legal tussle between the two. Summary of Facts In his employment contract, Roughton agreed to the terms that required him to work diligently for the bank. The same contract also guaranteed him a hefty bonus of £300,000 by the end of the year. Roughton started working in April 2009. In June of the same year, he got a letter informing him that he would get an increased bonus that was due not later than March 31 2010. The bonus was supposed to amount to £325,000. He was paid a bonus of £300,000 on December 15, 2010. Later in March 15, 2010 he received another bonus of £325,000. During a routine appraisal in April, it emerged that Roughton’s work was not up to the required quality. He left the company a month later. In September, Munro found out that an error had been made in the allocation of the £300,000 to Roughton in 2009. However, he denied that it was an error, saying that he was entitled to the money he got from the company. Munro Securities was ready to waive interest incurred on the extra bonus, but Roughton insisted on not paying the money back to the bank, saying that he had already invested it. According to the contract signed by Roughton concerning the terms and conditions of his employment, his employer had unlimited discretion on how to award his bonuses. Some factors that spelt out the conditions for bonuses include: 1. The bank’s performance 2. Roughton’s business area performance 3. Roughton’s personal performance 4. His employer’s strategic objectives 5. Whether Roughton remained in the bank’s employment In line with the conditions mentioned above, Roughton’s bonus was fair and did not go against any contractual agreement. However, he was not entitled for the second bonus because: 1. His personal performance was below the required standards 2. He did not stay as an employee, he quit his job in May 2010 3. the bank has discretion on how bonuses are given to employees According to Robert Simpson, the bank had already informed Roughton before hand of a possible delay on the date that he would receive his bonus payment. The bank had stated that the due date for the 2009 bonus would be before March 31 2010. They paid the whole amount on March 15 2010, without realizing that Roughton had already received another bonus. However, Roughton maintains that the extra bonus was not an error; rather it was a discretionary bonus which the bank gave him on top of the £325,000 that he was guaranteed to get (College of Law, 2010). One is the strengths of the Munro case is that the employer did not in any way breach the terms and conditions set out in the contract. Rather, the bank followed the contract to the letter and paid Roughton the £325,000 he had been promised as his bonus (Wynn-Evans, 2007). This was despite the fact that Roughton had not worked in the bank for a long time and his work quality was far from satisfactory. However, Roughton may have a valid point in not repaying the £300,000 which he claims was a discretionary bonus. The weakness in Munro’s case lies in the contract which guaranteed Roughton a minimum bonus of £300,000, the contract does not mention a maximum. Roughton could argue that the contract entitled him the whole amount of £625,000 since there was no maximum limit. Unless the bank produces proof that the extra bonus was an error, the case might not be ruled on their favor. In proving that the extra bonus was wrongfully given to Roughton, the bank might be refunded its money. There is also need for proof to contradict Roughton’s claims that he was entitled to a guaranteed bonus on top of the discretionary one that he got. Appropriate Remedy The appropriate remedy is to settle the matter out of court. It seems that Roughton has some legal foundation for his arguments. Although no proof has been presented yet, it could be understood that the bonus in question may have been a discretional one (Financial Services Authority, 2010). After the bank’s merger with the Weimar Landesbank, the bonuses were reviewed in a bid to keep the company’s valued employees. Although the bank might argue that Roughton might not have been entitled to the extra bonus since he had not been with the company for a long time and that in his short stay there his work had been unsatisfactory, it seems that Roughton has every right not to comply with the bank’s demands. He has a contract to fall back on. It is clearly stated in the agreement form that Roughton would receive a minimum bonus of £300,000 for the year 2009. This was a minimum bonus that could increase as the managers saw fit. Roughton can argue that the bank gave him £625,000 to fulfill its contractual obligations (International Center for Financial Regulation, 2009). Conclusion Considering the issue of contractual agreements in employment, this case is quite complicated on many fronts. Each party is bound to the contract signed (Moffat, 2007 and Evans and Sadler, 2001). Both sides present a strong case against the other. The contract states clearly that Roughton is entitled to a certain amount of bonus every year. The contract also mentions that the bank will award bonuses to its employees on its own discretion. However, the contract fails to mention exactly when the bonuses are to be given. Although the bank may claim that Roughton’s extra bonus was a mistake, Roughton can use the argument that he was entitled to the bonus since his contract guarantees him that (Wynn-Evans, 2007). In any case, he was still under the bank’s employment when he got the bonus, which had been promised to him through a formal letter. However, the bank can argue that the December 15 2009 bonus was an error since Roughton had already been informed that he would be getting his bonus for the year not later than 31st March 2010. In this case Roughton knew very well that he was not entitled to the 2009 bonus and it was his responsibility to inform his employer of the error. However, he waited until he was paid the second amount; in the meanwhile his work quality was deteriorating. When he left the bank’s employ, he had already bought himself a house and was using his bonus to pay off his mortgage. This might be a tough case and either side might lose. The best way to deal with it is to settle outside court. References College of Law. (2010). Munro Securities v Roughton. Evans, D. and Sadler, A. (2001). United Kingdom: The Exercise of Discretion in Making Bonus Payments to Employees. International Financial law Review, 20(2): 60 Financial Services Authority. (2010). Revising the Remuneration Code. Retrieved from: http://www.fsa.gov.uk/pubs/cp/cp10_19.pdf International Center for Financial Regulation. (2009). Summary of Walker Review on Corporate Governance in UK Banks and Other Financial Industry Entities. Retrieved from: Moffatt, J. (2007). Employment Law. London: Oxford University Press. http://www.icffr.org/getdoc/6d423460-70e2-4fcc-aabb-f592b5d76cfc/Summary-of-Walker-Review-on-Corporate-Governance-i.aspx Wynn-Evans, C. (2007). Discretionary Bonus Awards, UCTA and the Duty to Give Reasons. The Industrial Law Journal, 36(2): 207 – 214 Read More