Discretion is the better part of valour

Or, put another way, it’s better to avoid a dangerous situation than confront it.

Or, as I like to say, prevention is better than cure!

Although we can apply that to many parts of our everyday lives, and many parts of our legal lives, today I’m particularly focusing on employment contracts, which often give an employee the right to certain benefits, such as bonuses, which are paid at the employers discretion.

You may assume that if the employer decides to exercise his discretion not to pay, then that is the end of the matter – the employer has the right to say no, because the contract says so.

As always, it’s not as simple as that, because Courts are sometimes called upon to say whether that discretion has been exercised reasonably and rationally.  Where a Judge has found that the employer has not been reasonable and rational, they have been ordered to pay the bonus, despite the discretion in the contract.

Cases of this type are not restricted to the payment of bonuses.  A recent case involved a death in service payment, which the employer withheld because they couldn’t be certain that the employee hadn’t committed suicide, arguing that if he had, they were entitled not to pay.  Leaving the legal arguments on one side for a minute, I would say that if someone’s mental health is so damaged that they feel they have no alternative to taking their own life, then their family should be just as entitled to the financial support as if the employee had had a heart attack.

The best way to protect yourselves from problems of this type is not to have discretionary schemes for your employees.  For example, if you are going to have a bonus structure, decide on what criteria you would pay out, set that criteria out in the contract or your handbook, and then stick to it.  I can never guarantee that you won’t still be challenged, but if you have a process and apply it equally to everyone, it’s much harder for anyone to say that you have got it wrong.  The process is the process.

If you do still want a degree of discretion that cannot be clearly set out in writing (i.e. if you want some flexibility as to when you might not want to pay out) then make sure that the relevant clauses in your contract are very carefully worded.  We cannot legislate for everything that might happen, but the more careful the wording, the harder it will be for anyone to challenge it.

Finally, if all else fails, you can always give me a call and I’ll tell you about all my favourite Shakespeare quotes and the importance of clear wording in contracts.  The Bard may have believed that music was the food of love, but I think language is far more important.

Kleyman & Co Solicitors.  The full service law firm.  Because the show must go on.