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Change in market conditions did not entitle employee to challenge performance-related bonus

An employee whose job included forecasting nickel prices was not paid a performance-related bonus because his estimates were more than 50 per cent out, which meant considerable losses for his employer. He argued that this was because the global recession had affected the market and its prices badly, which could not have been predicted. He said that his forecasts were no worse than those of leading forecasters employed by other companies.

The High Court said that an employer's decision whether to pay a bonus or not will only be overturned if it is irrational or perverse, which is very difficult for an employee to prove.

In this case it took into account:

• The objectives the employee had been set.
• The employer's difficult financial position.
• That the employee's inaccurate forecasts had contributed to his employer's difficulties.
• The employer's assessment of his performance and its consequent decision not to pay a bonus.

On that basis, it decided that the decision not to pay him a bonus was consistent with the terms of his contract, and rational, and therefore ruled in the firm's favour.

Recommendation
Employers should ensure that employee's contracts containing performance-related bonuses are clear on whether they must pay bonuses for non-performance or not, when the reason for non-performance is beyond the employee's control.

Case ref: Humphreys v Norilsk Nickel International (UK) Ltd [2010] EWHC 1867 (QB)