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Are your ‘leaver’ provisions clear?

Employment Law

Drafting bonus and incentive schemes can often be a complicated and time-consuming job.  However, it’s time well spent when you consider the implications of getting things wrong.  All too often, employers can find themselves bound into arrangements that end up (i) encouraging the wrong kinds of behaviour, (ii) paying out too much money and (iii) paying it out in the wrong circumstances. With all this in mind, it’s worth looking at the recent case of Nosworthy v Instinctif Partners Ltd.

The facts

Ms Nosworthy resigned from her employment with Instinctif Partners.  As a result, she was categorised as a ‘bad leaver’ for the purposes of various incentive schemes.  Ms Nosworthy claimed that the company had acted unlawfully, in applying the ‘bad leaver’ provisions to her situation.  She alleged the rules were ‘unconscionable’ (unreasonable, excessive).  She also alleged that they amounted to an unlawful penalty clause, punishing her for her resignation, rather than compensating the company for any alleged loss.

The decision

Rightly, in our view, the Employment Tribunal and the Employment Appeal Tribunal both found in favour of the company.  There was nothing ‘unconscionable’ about the provisions.  Furthermore, in order for them to amount to an unlawful penalty clause, they would need to be related to an alleged breach of contract by the employee, which they did not.  Instead, the ‘bad leaver’ provisions applied to anyone leaving the company, even where their resignation was entirely lawful.

So what?

This is a case in which the company carefully and thoughtfully structured its incentive arrangements, clearly setting out how they would apply in circumstances where the employment relationship comes to an end.  This is something that is frequently overlooked and yet it is the time at which disputes are most likely to arise. After all, once an employee is leaving, what have they got to lose from kicking up a fuss?

If you would like to set up or review a bonus scheme or other incentive arrangement, please get in touch and we can talk you through the process.

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