Employment Contracts And Bonuses

A long disputed question has been whether the Unfair Contract Terms Act 1977 (UCTA) applies to contracts of employment, making it possible for an employee to argue that a term is void for unreasonableness.

The Court of Appeal has decided, in Commerzbank AG -v- Keen that UCTA does not apply because the employee does not contract with his employer as "a consumer".

In this case, Mr Keen challenged what has become a routine clause in bonus schemes, providing that no bonus will be payable if the employee is not still employed at the date on which it would otherwise be paid. The challenge failed. This means that employers can ordinarily rely on a term in a bonus scheme whereby no bonus will be payable if at the date of payment the employee is no longer employed or under notice, given or received. The fact that the employee may have worked effectively for the whole of the bonus year will not matter.