Mourant Ozannes Briefing: Quesnel Tribunal decision

In a welcome judgment for employers, the Guernsey Employment and Discrimination Tribunal (the Tribunal) recently rejected an employee's claim for constructive unfair dismissal and upheld an employer's right to exercise its discretion in accordance with the terms of its discretionary bonus scheme.

In a welcome judgment for employers, the Guernsey Employment and Discrimination Tribunal (the Tribunal) recently rejected an employee's claim for constructive unfair dismissal and upheld an employer's right to exercise its discretion in accordance with the terms of its discretionary bonus scheme.

But the decision may not be as comforting as it initially appears…

In the UK, it has long been accepted that an employer is entitled to exercise their discretion in whatever way they see fit, provided that it is not done in an "irrational or perverse" manner. Therefore, should an employee wish to challenge the validity of an employer's decision to exercise (or not to exercise) its discretion, this is an exceptionally high threshold for an employee to surmount. 

Pursuant to this test, an employer is under no obligation to exercise its discretion reasonably but rather it must not exercise it in bad faith or capriciously. For example, it would be considered "irrational" if an employer had exercised their discretion based on whether they liked an employee's shoes or whether the employee was shorter (or taller) than the Managing Director!

However, in this recent judgment, the specific wording adopted by the Tribunal does not appear to apply the accepted UK standard of "irrationality or perversity", but rather; it appears to have applied a standard of "reasonableness". Should this now be interpreted as the relevant test in Guernsey? 

If so, the threshold of "reasonableness" that an employee would need to prove is considerably lower than the "irrational or perverse" threshold. Whatever the true test in Guernsey, one thing is clear – there is a very real fetter on an employer's "discretion" when determining an employee's bonus (or similar benefit).

In Mrs Justine Quesnel v The Medical Specialist Group Limited (13 September 2013) (the MSG) (with the MSG being represented by Mourant Ozannes), Mrs Quesnel alleged constructive unfair dismissal claiming that:

• Her resignation was justified because she was awarded a lower bonus than other members of staff and that the process applied to the bonus awards was unreasonable;
• It was unfair that her performance related conduct was taken into consideration when  determining the quantum of her bonus because it had not been raised with her previously as a performance related concern; and
• The discretionary bonus allocation of 3% (rather than the average of 5% awarded to most employees) was awarded to her as a punishment which resulted in her losing trust in the MSG and feeling victimised.

The MSG denied that its actions had left Mrs Quesnel with no choice but to resign on the basis that:

• It operated a discretionary bonus scheme for all employees and any bonus (including the quantum of any bonus) awarded under that scheme was entirely discretionary;
• The exercise of its discretion under that bonus scheme was fair and objective and in no way irrational or perverse; and
• In particular, the MSG was entitled to have regard to performance related factors when determining the quantum of any bonus that might be awarded to Mrs Quesnel.

In order for Mrs Quesnel to succeed in her constructive unfair dismissal claim, Mrs Quesnel had the burden of proving that the MSG was in fundamental breach of her contract of employment and that, without undue delay, she resigned in response to that fundamental breach. The relevant question for the Tribunal, as submitted by Mourant Ozannes on behalf of the MSG, and which was accepted by the Tribunal during the hearing, was therefore whether the MSG had acted "irrationally or perversely" in exercising its discretion by awarding Mrs Quesnel a bonus of 3%, such that they were in fundamental breach of contract.

In respect of this issue, the Tribunal accepted that:

1. The MSG's bonus scheme was discretionary;
2. Mrs Quesnel was treated consistently with other staff members; and
3. The process applied to the determination and allocation of bonus awards was subject to a thorough three stage process which involved consideration by a bonus review committee and a clear justification of the relevant bonus award to be allocated to Mrs Quesnel. 

The Tribunal concluded that, in these circumstances, "Based on the evidence before it, the tribunal is persuaded that in exercising that discretion, the Respondent did not act unreasonably".

Rather than applying the threshold test of irrationality and/or perversity, it would appear that the Tribunal applied a test of reasonableness. The Tribunal does not, however, go so far as to expressly state what test it in fact applied. As such, it is uncertain as to whether the test of "reasonableness" will be the relevant test to be applied in Guernsey when considering the exercise of an employer's discretion moving into the future.

In this particular case however, whichever test was ultimately applied, the Tribunal held that the MSG had validly exercised its discretion in accordance with its contractual terms, and in so doing, it had not breached a fundamental term of Mrs Quesnel's employment contract.

Therefore, Mrs Quesnel's claim for constructive unfair dismissal could not be made out. 

What can employers take from this judgment? Whilst reassuringly, it confirms that employers are entitled to exercise their discretion where it is part of a discretionary benefit scheme, there are several factors that must be considered:

• Firstly, where an employer has a bonus scheme already in place, it is important that they are aware of how much discretion actually exists in the specific wording of either, and/or both, the employment contract or the bonus scheme itself;
• Secondly, where the discretion is not fettered by specific company and/or personal performance targets (each of which are usually easily justified), when determining the exercise of that discretion, employers should be able to show a considered process and be able to explain why (whether subjectively and/ or objectively) a bonus was (or was not) awarded to a particular employee; and
• Finally, employers should be aware that the threshold test in Guernsey for the fetter on an employer's discretion may not be as high as "irrational and/or perverse" and that, if tested, employers may be required to justify their decisions to a lower threshold of "reasonableness".