PILONs and bonus payments

In Locke v Candy and Candy Limited, the Court of Appeal has concluded that an employee who is paid in lieu of their notice entitlement under a PILON, and is therefore not in employment at the time of payment, is not entitled to a guaranteed bonus.

Mr Locke was employed by Candy and Candy Limited, for just under a year.  Under his Employment Contract, he was entitled to two guaranteed bonuses in his first year of employment.  The second fell due after he had been employed for 12 months.  The Contract stated that he must be employed by the Company in order to receive the bonus.  The Contract also contained a six month notice period and reserved the right to make payment in lieu of notice (although it was not specific what payments were payable in the event that the PILON clause was used). 

On 7 September 2008, 10 days before the second bonus payment became due, Mr Locke was summarily dismissed and was paid in lieu of notice of his basic salary.  The Company did not pay the second bonus payment and therefore Mr Locke issued proceedings for breach of contract, arguing that the bonus payment should have been included as part of the PILON.  Fortunately for the company, the Court of Appeal concluded that a PILON does not give an employee an entitlement to all payments and benefits under the contract as if the employee had remained employed during the notice period.  Looking at the Employment Contract as a whole, the bonus clause was decisive in that it explained that the employee must be employed. 

The case acts as a reminder that employers should be clear which payments fall due if the PILON is used.