In the recent case of BGC Partners (Singapore) Ltd and another v Sumit Grover [2024] SGHC 206, the High Court of Singapore affirmed that there is no absolute rule that all contractual bonuses are discretionary in nature. An employee’s entitlement to bonus turns on the construction of the bonus clause, and the court will look at all relevant circumstances to ascertain parties’ true intentions. The court also held that even if an employer had the discretion to determine bonus, that discretion must not be exercised arbitrarily, capriciously, or irrationally.
Mr. Sumit Grover (“Sumit”) was a former employee of BGC Partners Singapore Ltd and GIFT Group Pte Ltd (collectively, BGC). Following the termination of Sumit’s employment, BGC initiated legal action to recover amounts owed under a loan provided to him. In response, Sumit counterclaimed for damages for unlawful termination of his employment and unpaid bonuses.
An issue that arose in this case concerned Sumit’s entitlement to bonus payments. The High Court was called upon to determine if Sumit’s entitlement to bonuses was guaranteed as of right and whether BGC’s decision to withhold the bonuses was lawful.
In determining this issue, the High Court considered the bonus clause in Sumit’s employment agreement, which provided as follows:
5. Bonuses
5.1 Individual bonus (1)
You will be eligible for an individual bonus which shall be calculated as follows
[The Payout Rate x Individual Net Revenue] LESS Expenses.
…
If awarded, the individual bonus will be paid six monthly, 90 days in arrears, that is in September each year for the bonus period 1 January to 30 June inclusive …
…
5.2 For the avoidance of doubt, the entitlement to the bonus will only arise, when and if a bonus is paid to you.
1. Whether Sumit’s entitlement to bonuses was guaranteed as of a right or at BGC’s discretion?
Affirming the holdings in earlier decisions, the High Court observed, as a starting point, that whether an employee is entitled to bonus under an employment agreement turns on the construction of the bonus clause in question. There is no absolute rule that all contractual bonuses are discretionary in nature. Even where the contract expressly states that bonus is 'discretionary' or that the employer reserves an 'absolute right' to declare bonuses, the courts will look at all relevant circumstances to ascertain the parties’ true intentions.
In relation to the bonus clause in question, the High Court held that the bonus clause was discretionary for the following reasons:
a) the bonus clause used the phrase “will be eligible” rather than “entitled”,
b) the words “if awarded” signifies that the award of a bonus is a hypothetical event; and
c) the fact that “entitlement” to a bonus only arises “when and if a bonus is paid” supports BGC’s contention that bonus payments were conditional and not as of right.
2. Whether the decision to withhold the bonuses was lawful?
The court observed, from existing case-law, that a contracting party has an implied duty to exercise a contractual discretion reasonably, or to ensure that such a contractual discretion will not be exercised arbitrarily, capriciously, or irrationally. The court readily found that this implied duty applied to employment relationships and, specifically, in the context of the employer’s exercise of its discretion in awarding bonuses to employees. The court also acknowledged that the courts will not intervene in the exercise of a contractual discretion lightly. Judicial intervention may be warranted only if the exercise of contractual discretion is “so outrageous in its defiance of reason that it can be properly categorised as perverse”.
In this case, BGC’s reasons for withholding bonuses from Sumit included the latter’s unwillingness to share customer lines within his team so that prices could be disseminated to all clients in a timely manner at the same time, and also his absenteeism from work without valid reasons. In respect of Sumit’s unwillingness to share customer lines with his team, the court held that such conduct amounted to a failure by the defendant to demonstrate teamwork reasonably expected of him. The court found that it was reasonable for BGC to withhold bonuses from Sumit on this ground alone. Further, it could not be said that BGC’s exercise of its discretion in this regard was arbitrary, capricious or irrational.
This article is produced by our Singapore office, Bird & Bird ATMD LLP. It does not constitute as legal advice and is intended to provide general information only. Information in this article is accurate as of 19 September 2024.