Singapore High Court upholds discretionary bonus clause to withhold bonus from a former employee

At a glance

• In the recent decision of BGC Partners (Singapore) Limited and GFI Group Pte Ltd v Sumit Grover [2024] SGHC 206, the General Division of the High Court of Singapore considered the issue of whether a former employee was entitled to any bonuses from their former employer.
• While the decision does not represent a change in the law, it serves as a timely reminder of the importance of having carefully drafted bonus clauses in the employment agreement which make clear that a bonus is discretionary in nature and not a contractual entitlement.

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Facts

The defendant, Mr Sumit Grover (Grover), was a former employee of the plaintiffs, consisting of BGC Partners Singapore Ltd and GFI Group Pte Ltd (collectively, BGC). BGC had commenced proceedings against Grover after his employment was terminated to claim sums owed under a loan given by BGC to him. In response, Grover counterclaimed for damages for unlawful termination of his employment and unpaid bonuses.

In this case, the employment agreement contained a bonus clause, with the relevant parts set out below: 

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.

The High Court's decision

Grover's claims were all dismissed. In relation to the unpaid bonus, the High Court held that Grover was not entitled to any bonuses from BGC. The bonuses were not guaranteed as of right, and BGC’s decision to withhold them was lawful.

Whether bonuses were guaranteed as of right:

As a starting point, the High Court reiterated that whether an employee is entitled to bonus under an employment agreement turns on the construction of the bonus clause in question, and 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, Singapore courts will look at all relevant circumstances to ascertain the parties’ true intentions. This means that how the parties label the nature of a bonus is not definitive. The court will take a contextual approach in interpreting a bonus clause.

Based on a holistic reading of the bonus clause, the High Court found that the entitlement to bonus payment was discretionary for the following reasons: 

• Clause 5.1 stated that Grover 'will be eligible' for a bonus, not that he will be 'entitle[d]' to it as stated in clause 5.2;
• Clause 5.1 stated that 'If awarded, the individual bonus will be paid six monthly, 90 days in arrears', specifying when the bonus payment would be made in the hypothetical event that the bonus is awarded; and
• Clause 5.2 expressly clarified that the 'entitlement' to a bonus would only arise 'when and if a bonus is paid'. The High Court opined that it could not be clearer that bonus payment was conditional and not as of right.

Grover also attempted to rely on extrinsic evidence in the form of pre-contractual negotiations to aid in contractual interpretation of the bonus clause. In particular, he highlighted that it was subjectively agreed that he would get a 'guaranteed bonus'. However, the High Court found this to be irrelevant, and affirmed the principles in Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd [2008] SGCA 27 that 'in interpreting a contract, extrinsic evidence is only employed to illuminate the contractual language and not as a pretext to contradict or vary it'. Therefore, the High Court found that Grover and BCG's objective intention was for bonuses to be awarded on a discretionary basis. 

Whether BGC's decision to withhold the bonuses was lawful: 

The High Court also reaffirmed that there is an implied duty to exercise contractual discretion reasonably. In the employment context, courts have held that the employer's discretion must not be exercised arbitrarily, capriciously or irrationally. However, courts will not intervene in the exercise of such discretion lightly, and judicial intervention would only be warranted 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 pleaded several allegations of misconduct by Grover as reasons for withholding the bonuses. While evidence in support of some allegations was ruled to be inadmissible hearsay evidence, the High Court accepted two reasons that made it reasonable for BGC to withhold the bonuses:

• Unwillingness to share customer lines: Grover was unwilling to share customer lines within his team so that prices could be disseminated to all clients in a timely manner at the same time. From BGC's perspective, this behaviour would have been perceived as a potential jeopardy to equal client treatment, and a failure to demonstrate teamwork reasonably expected of him. The High Court opined that Grover's preferred way of working could not be aligned with BGC’s plans and strategies, and his behaviour was a legitimate concern for a brokerage firm like BGC.
• Unapproved absence: Grover was absent from work without valid reasons despite his employment agreement containing a clear contractual obligation regarding physical attendance. It was accepted that Grover did not tap in with his access card at BGC's physical office for at least 27 days over a period of approximately six months (until on or around the bonus payment date) without providing any legitimate reasons. 

Therefore, the High Court held that Grover was not entitled to unpaid bonuses for the relevant period. In obiter, the High Court also noted that there was no contractual obligation for BGC to provide reasons for withholding discretionary bonuses to an ex-employee. 

Practical takeaways

This decision highlights the importance of a carefully drafted bonus clause in the employment agreement. Employers should review their existing bonus clauses to ensure that such clauses accurately reflect parties' intention as regards whether the bonus clause is discretionary. While the High Court stated that there is no absolute rule that all contractual clauses are discretionary in nature, courts can also take a contextual approach to ascertain the objective intention of the parties. 

Further, even where the intention was for the employer to award bonuses on a discretionary basis, there is an implied duty to exercise this discretion reasonably. While courts would not lightly interfere with an employer's discretion, employers should bear in mind the question of whether any reasonable employer would have exercised their discretion in the same way to avoid breaching their implied duty.