Locke v Candy and Candy Limited
Although the terms of a contract may seem crystal clear at the time of signing it, the decision in Locke v Candy and Candy Limited show they may be anything but. The Court of Appeal held that after being summarily dismissed, Mr Locke was not entitled to a contractual bonus because of a clause which stipulated that he had to be “employed” by the company to receive it.
Basic facts
Mr Locke started work on 17 September 2007 as the project director for Candy & Candy overseeing a major property development on behalf of the Qatari government on an annual salary of £200,000.
He was entitled to a bonus of £160,000 after 12 months in the job, but only if he was still “employed by the company” (clause 4.2). Under clause 7.1, the company could terminate his employment with six months notice; under 7.5 it had the right to make a payment in lieu of notice (PILON); and under clause 7.6 it had the right to put him on “garden leave” during “any period of notice”.
The company then tried to make changes to his contract which Mr Locke rejected. It terminated his contract on 7 September, giving him six months salary in lieu of notice but withheld the bonus on the basis that he had not been employed for 12 months.
Mr Locke claimed that he was entitled to the bonus because had he been asked to work his notice or had he been put on “garden leave”, he would have notched up a year’s employment.
High Court decision
However, the High Court disagreed. It pointed to the “detailed provision” for garden leave in the contract as well as the provision for payment in lieu of notice, giving the company the right to terminate his contract with immediate effect.
It reasoned that if Mr Locke was right and the company was obliged to pay six months’ salary and the bonus, then the company had voluntarily accepted “ a most onerous obligation from which it derived no advantage”.
It concluded that “this interpretation is strained, unnecessary and inconsistent with the clauses 4.2 and 7 of the agreement."
Court of Appeal decision
And a majority of the Court of Appeal agreed.
It pointed out that as the PILON clause did not stipulate how much should be paid in lieu of notice, “the amount had to be found somewhere else in the contract”. That meant the court had to look at the rest of the contract and interpret it “holistically”.
Reading the contract “in its entirety” and giving the words in clause 4.2 their natural meaning, it concluded that “provided the employer makes the right payment in lieu of notice, the employment of the employee with the employer comes to an end”.
Clause 4.2 must therefore apply to a situation in which the company had exercised its rights under clause 7.5 to make a payment in lieu of notice.
The unfortunate result was that Mr Locke was thereby “deprived of a bonus to which he would have been entitled had he completed one year's service, which he almost had, but that ... was the consequence of what the parties had agreed.”