Gard & Co v Symonds IRLB 647
T & K Home Improvements Limited v Skilton [2000] IRLR 595
Clark v Nomura International Plc October 2000 IRLB 651

Three recently reported cases may offer some useful guidance in relation to interpretation of contracts in disputes arising on dismissal. Each of the three have completely different facts and circumstances but show a consistency of approach in the Tribunal or Courts' interpretation of the relevant sections of the contract.

In the case of Gard & Co v Symonds, the Applicant was a solicitor employed by his firm to set up and run a Family Law and Litigation Department. After five years of failing to achieve the targets set for annual fee income, Mr Gard was advised by the Partners of his firm that his continued employment was dependent upon him meeting fee targets.

Shortly afterwards, he became sick and, in his absence, it was discovered that, while his files had been well-maintained, some were missing. A deadline was set for Mr Gard to produce these files and was told that if he failed to produce them, his contract would be terminated. The files were not produced in time and he was summarily dismissed. Mr Gard complained to the Employment Tribunal that his dismissal was both wrongful and unfair. Summary dismissal was provided for in his contract for reasons of "serious misconduct" or any "material breach" of its terms. The Tribunal found that his failure to produce the missing files, for which he was responsible, but in respect of which he was not guilty of any misconduct, was wrongful. They found that "material" in the contract should be looked at in the context of other serious breaches in the contract. The EAT agreed

The Employment Tribunal took a similar approach in its attempts to interpret Mr Skilton's contract when he was dismissed by his employers.

T & K Home Improvements Limited v Skilton was eventually decided by the Court of Appeal in April this year. Mr Skilton's contract had clauses for dismissal without prior notice or pay in lieu for, inter alia, "gross misconduct, gross incompetence or other repudiatory breach of contract". Significantly, however, there was a later Addendum to the contract which dealt specifically with "dismissal for missing targets", which indicated that, "If over any quarter you fail to achieve your performance target" you may be dismissed with immediate effect". Mr Skilton was dismissed for failing to meet his sales targets and the employers contended that the contractual provision entitling them to dismiss him "with immediate effect" for failing to achieve his performance target excluded any liability on them to give notice of termination or to make a payment in lieu. Once again, the Tribunal, the EAT and, ultimately, the Court of Appeal gave their interpretation of the offending contract clause in its context. They read a specific meaning into the Addendum and held that "You may be dismissed with immediate effect" rather than "We can dismiss you without prior notice or payment in lieu" powerfully demonstrated that the former was intended to provide for a different and less draconian form of dismissal than the usual summary dismissal process. In the specific circumstances of that case, it was held that, as Mr Skilton was not entitled to work out his period of notice as a result of his dismissal "with immediate effect", he was entitled contractually to be paid in lieu of notice.

In the last of these three cases, Clark v Nomura International Plc, the Claimant, Mr Clark, sought to have separate and additional oral agreements accepted in evidence which he argued supplemented the written contract. In the event, that evidence was not accepted and, once again, consideration was given solely to interpretation of the written terms of contract in their context.

The dispute arose from the non-payment of a bonus on Mr Clark's dismissal. His contract referred to the bonus as being "not guaranteed in any way, andÉ dependent upon individual performance and after the first 12 months of your remaining in our employment on the date of payment". When Mr Clark was dismissed, he was paid his basic salary in respect of the three month notice period provided in the contract but, although he was still in employment at the date for payment of the annual bonus and had earned substantial profits for the Company during the relevant period, he received no bonus at all in respect of the period from 1 July 1996 to 31 March 1997.

It was Mr Clark's case that, according to the terms of his letter of appointment, which formed the basis of the contract, the exercise of his employer's discretion to award a bonus was dependent upon his individual performance which, in that context, meant his profitability as a proprietary trader.

The evidence showed that there was no question over his success and profitability on that basis.

However, his employers sought to interpret "performance" in a much broader way so that it might include all aspects of his employment and his overall contribution to the success of the business. Their reasons for dismissal related to his "inappropriate dress and appearance, erratic time-keeping and attendance, lack of attendance at management meetings, involvement in perpetuating rumours about peers, and outright criticism of the Management Committee and their strategy in front of peers and subordinates". The Claimant was told following his dismissal that they had had the opportunity to consider both his financial performance and the other concerns they had in regard to his behaviour and decided that no further payment would be made under the discretionary bonus arrangement. Mr Clark had, in fact, made profits for the Company of around £6.5 million for the relevant period and was, thereby, eligible for a bonus in the sum of £1.35million. In addition, as a result of transactions carried out and managed by Mr Clark, the Company was expected to receive a profit of £16million for the whole of that year.

Significantly, the High Court established a 'perversity test'. The Court held that, where an employer is exercising discretion which, on the face of the contract of employment, is unfettered or absolute, there will be a breach of contract if no reasonable employer would have exercised the discretion in that way.

They stated that, in this situation, the employer's decision to award a nil bonus to an employee who had earned profits for the Company of over £6million in nine months and was responsible for a transaction that would probably bring to the Company a further £16million in the near future, and against whom any allegations that were made had not been treated previously as sufficient to require even advice or warning, and certainly not sufficient to justify summary dismissal, was plainly perverse and irrational and did not comply with the terms of the employer's discretion.

The Court distinguished this test from the test of 'capriciousness' which can be harder to establish, but stated that they felt the test was greater than a mere 'reasonableness test' The Court stated that, in applying a test of perversity or irrationality, the Court does not substitute its own view but asks the question whether any reasonable employer could properly have come to the same conclusion.

While the three cases referred to here are quite different in fact and, possibly, significance, it is noteworthy that they have maintained a general view that, in situations where there is dispute over interpretation of a contract, the Tribunal and Courts will interpret the contract strictly against the employer in cases where there may be arguments as to the true meaning of the contract.