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Can an employee be required to repay a bonus payment to their employer?

Yes, held the Court of Appeal in JLT Specialty Ltd v Craven [2018] EWCA Civ 2487. The case related to a bonus advance in the sum of £500,000 paid to the employee. The Court of Appeal held that the bonus became repayable following the employee resigning before a specified date in accordance with an addendum to the employment contract.

What does this mean for you?

This case demonstrates the importance of clear wording and avoiding ambiguous language when drafting contractual documents and correspondence to employees. This is highlighted as the Court of Appeal were unwilling to depart from the contract due to its clear wording, even though uncertainty was caused by the following correspondence between the parties. The Court of Appeal found in the employer’s favour, despite the significant effect its decision had on the employee, by allowing a cut off period where the employee was liable to repay the bonus if his employment terminated on 31 December 2016, and its finding that he would not have had to repay the bonus if his employment terminated the following day on 1 January 2017.

Facts

The employee began working for JLT Specialty Ltd (“JLT”) in 2005; the employee’s contract was varied by an addendum in 2012. Within the addendum, there was a provision for the employee to receive a bonus advance in the sum of £500,000, which was to be repaid within 7 days of the end of his employment if the employee resigned on or before 31 December 2016. The contract stated:

"In the event that the Executive [i.e. Mr Craven] is a Bad Leaver (The Executive's employment ends for any reason other than redundancy, ill health, early retirement, or arranging consultancy agreement with JLT. An example of a Bad Leaver would be going to work for a competitor) or resigns on or before 31 December 2016, then the Bonus Advance will be repayable in full as follows:

2.3.1 If the Bonus Advance was awarded as a Cash Payment or as Staged Cash Advances then the gross value of the Bonus Advance paid to the Executive as at the date of resignation will be repayable by the Executive within 7 days of the Executive's employment ending…".

The contract addendum also provided for 52 weeks’ notice by either party to end the employment relationship, provided that notice by the employee did not expire before 31 December 2016.

On 23 September 2015, the employee wrote to JLT providing his notice to resign. In response, JLT wrote to the employee on 29 September 2015, accepting his resignation and stated that his employment would come to an end on 1 January 2017.

On 5 August 2016, JLT further wrote to the employee confirming the final day of his employment would be 31 December 2016 and that it expected repayment of the bonus advance by 7 January 2017.  On three separate occasions on 25 August 2016, 12 September 2016 and 21 December 2016, JLT confirmed to the employee that his employment would cease on 31 December 2016.

JLT argued that the employee triggered the obligation to repay the bonus advance by resigning on or before 31 December 2016, when he provided notice of his resignation on 23 September 2015. It argued in the alternative that his employment ended on 31 December 2016, thus triggering the repayment.

The employee’s position was that the term “resigns” within the addendum meant that the court should look to the date the employment ended instead of when he provided notice. As such, he argued, the fact that he gave notice to resign on 23 September 2015, would be of no significance.

Further, he stated that the contract applied only to a resignation, which took effect before 31 December 2016 and not termination on that day. This argument was advanced on the basis the true agreement between the parties was that if he remained employed for the full five years up to 31 December 2016, the intention must have been that he need not repay the bonus if he left on 31 December 2016. Consequently, the words “on or” (in “on or before 31 December 2016”) should be omitted from the wording of the addendum. He also argued that there was scope for argument his employment came to an end on 1 January 2017 rather than 31 December 2016.

Decision

Variation of the contract

The Court of Appeal held that JLT’s letter on 29 September 2015 could not be construed as an offer to vary the termination date as it was merely confirming the acceptance of the resignation. The Court stated that its view was that JLT was not intending to put forward any proposal of its own, but just to confirm that the employee’s resignation was accepted. With regard to the reference to "1 January 2017", it held that a reasonable recipient would have inferred that JLT was unwilling for the contract to terminate any earlier than was possible under the Addendum, not that JLT was proposing a variation in the termination date. On that basis, the reference to 1 January might reasonably have been understood as stating the first day on which the employee would be free to work for somebody else, rather than the day on which his existing employment would come to an end.

In reaching this conclusion, the Court of Appeal held that even if the letter constituted an offer, there was no real prospect of concluding that it was accepted in the circumstances as the employee did not respond to the letter. In support of its decision, it noted that whilst an offer cannot be accepted by silence there was no reason to believe that the employee’s conduct was consistent only with accepting the offer rather than working under his pre-existing contract. Therefore, his conduct did not constitute acceptance.

The Court of Appeal also noted that even if it was wrong, there was a compelling case to say that the contract had been varied again to restore the 31 December 2016 as the termination date in accordance with JLT’s letter dated 5 August 2016.

It also found that as the employee did not challenge the statements and had continued to receive payments there was no prospect of finding that his employment continued until 1 January 2017.

Interpretation of the contract

In interpreting the addendum to the contract, the Court held that there was no issue with the language within the clauses, nor would a reasonable person have understood the parties to have meant that the employee should not be liable to repay the bonus if his employment ended on 31 December 2016.

In the circumstances, it was unnecessary for the court to go on to decide whether an employee “resigns” on the date of giving notice of termination or on the date when that notice expired as the employee was found to have left his employment on 31 December 2016. Consequently, the bonus was repayable in full by the employee.

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