Director didn’t breach duty over employee bonus in company transfer

A director didn’t breach his legal duty when he gave an employee an enhanced bonus entitlement shortly before a takeover involving the transfer of employment contracts.

Mark Aspin Head of Dispute Resolution reports on this recent case:

That was the decision of the High Court in a case involving Reader v SPIE Ltd.

The court heard that Paul Garside had sold his company to SPIE under a share purchase agreement which completed in July 2012.

Clause 11.3 of the agreement imposed potential liability on Garside if any of four key employees, including John Reader, did not sign up to SPIE’s employment terms, including a less favourable bonus scheme, by 31 August 2012.

Reader moved on to SPIE’s standard terms and conditions on 11 September 2012 as part of a contract concluded between him and Garside. A side letter to that contract enhanced his bonus for the fiscal year 2011/12 from £49,568 to £186,202.

SPIE did not pay the enhanced bonus, so Reader began proceedings to recover the unpaid portion. SPIE claimed against Garside on the basis that he would be liable to it in respect of any award or settlement in Reader’s favour.

In 2016, SPIE settled Reader’s claim.

The proceedings continued between SPIE and Garside. On 12 January, SPIE offered to settle for a payment from Garside of £10,000 plus costs.

Garside didn’t accept the offer. SPIE was eventually awarded more than £38,000 on the basis that Garside’s fiduciary duty meant that simply disclosing Reader’s enhanced bonus term was not enough.

The judge accepted that SPIE had not noticed the enhanced bonus term when authorising the package and held that Garside should have done more to explicitly signpost it.

The High Court overturned that decision.

It held that the judge had been wrong to find that Garside was liable to SPIE for breach of his fiduciary duty.

It was a rule of equity that a fiduciary must not act where their interest and duties conflicted. However, an exception was where there was fully informed consent. Given that Garside had disclosed the enhanced bonus term to SPIE, the correct conclusion in law was that there had been no breach of duty.

He had accurately and fully disclosed the enhanced terms and had been entitled to expect SPIE to see them, understand them, and decide whether to authorise them. He was not expected to explicitly signpost them.

If you would like more information about the issues raised in this article or any aspect of employment law please contact Mark on 01228 516666 or click here to send him an email.