Employment Law Cases

Faieta v ICAP

There was no breach of contract where an employer refused to pay a minimum bonus during the employee’s period of garden leave. Against a background of declining revenues and the employee’s refusal to forgo his bonus, the decision to place him on garden leave was not irrational.

Background

Mr Faieta was employed as a broker by ICAP under a five-year fixed-term contract which granted him a guaranteed minimum bonus of £200,000 per year. When the financial performance of his desk declined ICAP gave him a choice: accept a change to the contract without the guaranteed bonus or be dismissed. Other members of the team were also asked to reduce their bonuses to ensure that the business remained profitable, and either had a relevant clause allowing this, or accepted the reduction. When Mr Faieta refused to forgo his bonus, he was given notice and in July 2014 was placed on garden leave in accordance with the very specific provisions of his contract. The letter from ICAP stated: ‘whilst you are on garden leave you will be paid your salary (less deductions) and receive your benefits in the usual way’. Mr Faieta was kept on garden leave for 15 months until his dismissal in November 2015. Before the High Court, Mr Faieta argued that placing him on garden leave and not paying him his bonus was a fundamental breach of contract.

High Court decision

The High Court held that Mr Faieta was not entitled to be paid his bonus during garden leave because of the specific terms of his contract which stated that bonus arrangements did not continue during garden leave and that the bonus was only payable where the employee is in work and performing duties. The use of the term ‘benefits’ in ICAP’s letter was not intended to refer to bonuses.

The High Court also held that placing him on garden leave was not a fundamental breach of contract. It stressed that employers cannot always place an employee on garden leave; it is a decision they must think through with care, act with reasonable and proper cause’ and provide reasons for. Additionally, there is an implied term in an employment contract that an employer will not exercise its discretion to place an employee on garden leave irrationally or perversely. The court had to assess whether the right matters had been considered when the decision to place Mr Faieta on garden leave was made, and then whether the result was so outrageous that no reasonable decision maker could have reached it. Here the court found that ICAP’s use of the garden leave clause was not to stop Mr Faieta competing (indeed it made the point that he was free to look for other work and ask to be released from his contract) but rather to provide a period to negotiate a settlement package with him. Against a backdrop of declining revenues and Mr Faieta’s refusal to forgo his bonus entitlement, the decision to place him on garden leave was not irrational. ICAP had neither taken matters into account which it ought not to have done, nor neglected relevant considerations when it made its decision.

Link to judgment: http://www.bailii.org/ew/cases/EWHC/QB/2017/2995.html

Comment

Placing an employee on garden leave does not mean it is not open to challenge. If they are being prevented from competing the courts will look to see if the employee’s skills are withering away whilst they sit at home and will apply the same tests as they do for restrictive covenants – does the length of the garden leave go no further than is necessary to protect the legitimate business interests of the employer? However, this case emphasises that even if an employer is not preventing them from competing then they still need to consider their reasons for doing it and not act irrationally.