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Ben Jones
Ben Jones, UK Lawyer
Category: Employment Law
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Bonus clawback at London bank. I had a bonus paid in respect of 2013 in March 2014. The

Resolved Question:

Bonus clawback at London bank.
I had a bonus paid in respect of 2013 in March 2014. The company subsequently underwent dramatic change caused by fraudulent action in the foreign parent company (it had to be nationalised by the government in August 2014), trading in London dropped to a fraction of normal as clients fled and never returned, many employees sought alternative employment including myself as a result of the bleak outlook.
I left in October 2014. Bonus payment came with a letter stating that the bonus would need to be paid back if employee left the firm within 12 months.
Do I have reasonable grounds, given the drastic change in circumstances in the summer, to contest the payback that the firm is demanding?
Submitted: 2 years ago.
Category: Employment Law
Expert:  Ben Jones replied 2 years ago.
Ben Jones :

Hello, my name is ***** ***** it is my pleasure to assist you with your question today. Was the bonus paid for your performance in 2013?

Customer:

Yes

Customer:

Will this discussion appear online?

Customer:

or is it private?

Ben Jones :

this is a public forum but there is nothing specific that can identify you

Ben Jones :

Are you happy to continue?

Customer:

I can't give you any more details then, you will need to respond just on information given

Ben Jones :

that's fine, I will just get my response ready

Ben Jones :

Bonus clawback clauses can be legal and enforceable, although there are certain factors that need to be taken into account.

First of all if you wanted to claim that the circumstances that led to you leaving have made the clause unenforceable you would need to show that the employer had acted in serious breach of contract, which in turn led you o treat your contract as being void and leave in response to that. Whether that applies would depend on what actually happened and if it was the employer’s actions which made your position impossible. The issue is that this was due to the parent company and not your employer – these would be two separate entities so you may not be able to rely on their conduct to bring your employer into this.

It could be that the clawback clause is considered a penalty clause, which could make it unenforceable. A penalty clause may exist where there is a provision requiring a payment from an employee in connection with a breach of contract, and the payment sum stipulated amounts to a deterrent rather than a genuine pre-estimate of loss. So if it is simply in place to try and prevent you from leaving, especially if it was paid on the basis f your successful performance in the past, which you have accomplished, then it could be seen as a penalty clause and be unlawful and unenforceable.

In any event the employer cannot just force you to pay back the bonus – they must take you to court and convince it that the clause was reasonable and enforceable. You can use the arguments above in the event they decide to take this further.

Customer:

In terms of taking it to court, if it it is contested as a non-small claims, what sort of % of value of claim could be added in terms of legal costs in the event of a loss?

Ben Jones :

How much are they claiming back?

Customer:

Over the small claims limit

Customer:

but not by orders of magnitude

Customer:

also, can constructive dismissal be argued? On the basis of the change in working conditions (i.e. no clients trading due to reputational damage)

Ben Jones :

if it is over £10k it will not go to the small claims court so it could be that the losing party is asked to pay for all or part of the winning party's costs - what these were would depend entirely on how much legal work was needed so to give a percentage would be impossible.

As to constructive dismissal, you would need to show that the employer had breached the contract - often conditions of work can change without the employer's fault so it must be their breach of contract which forces you to leave, but as mentioned it is something you can raise as a defence, it would be for the court to decide if it applies

Customer:

So if the claim was for £10,001, a few hours of partner level city law firm could easily exceed this and it could be awarded?

Ben Jones :

yes but it is not as simple as that, the court will have to assess the costs before they order their payment, so they will still consider if they are fair and reasonable in the circumstances

Customer:

One other thing...

Customer:

I've read that a clawback provision must not amount to a restraint of trade. Is there any argument to be had with the circumstances effectively stopping employees being able to do their job but provision forcing them to stay?

Ben Jones :

Under the doctrine of restraint of trade, any contractual term which purports to restrict an individual's freedom to work for others or carry out his trade or business is void and unenforceable, unless the employer can show that it has a legitimate proprietary interest that requires protection, and the protection sought is no more than is reasonable, having regard to the parties' and the public's interest.

Some remuneration or incentive practices that appear neutral may, in fact, have the effect of restraining employees' future work. If such practices are held to be an unreasonable restraint of trade, they will not be enforceable. When drafting a bonus scheme, it is therefore important to establish the aims and effects of the scheme, and ensure that, as far as possible, it is not designed to dissuade employees from leaving their employer, but has other objectives, such as promoting effective risk-management and avoiding excessive risk-taking.

So if a bonus clause simply operates to prevent an employee from leaving but does not work in a way to protect a legitimate business interest (trade secrets and confidential information, trade or customer connections or stability of the workforce), it could be seen as a restraint of trade, but again it is for a court to determine that.

Customer:

Ok thanks for the info

Ben Jones :

you are welcome

Customer:

The rating buttons are greyed out

Customer:

you can have excellent

Customer:

thanks

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