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England and Wales High Court (Queen's Bench Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Queen's Bench Division) Decisions >> Faieta v ICAP Management Services Ltd  EWHC 2995 (QB) (06 December 2017)
Cite as:  EWHC 2995 (QB)
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QUEEN'S BENCH DIVISION
Rolls Building, 7 Rolls Buildings
Fetter Lane, London EC4A 1NL
B e f o r e :
| ADRIAN FAIETA
|- and -
|ICAP MANAGEMENT SERVICES LIMITED
Mr David Craig QC (instructed by Macfarlanes LLP) for the Defendant
Hearing dates: 14-16 November 2017
Crown Copyright ©
Mrs Justice Moulder :
Clause 4.1 Salary/Payments/Allowances
"the Company shall during the employment of the Employee pay to the Employee a basic salary ("Salary") at the rate of £200,000 per annum (less tax, national insurance and other statutory deductions)."
Clause 5 Bonus
"5.1 Subject to the other provisions of this Agreement and except in respect of any period of Garden Leave, in addition to Salary, the Employee shall benefit from the bonus arrangements set out in the Schedule to this Agreement.
5.3 notwithstanding any other provision in this Agreement or part 1 to the contrary, bonus will only be payable to the Employee if and to the extent that the Employee has been at work and performing his duties for the Company throughout the relevant bonus period… "
Clause 6.1 Benefits
"The Employee shall be entitled to participate in the benefits set out in, and subject to the terms of, the Handbook as varied from time to time pertaining to Private Medical Insurance, Group Life Assurance and Group Income Protection. The employee will be eligible to participate in such benefits as from the date/s set out in the Handbook save that Private Medical Insurance Cover will commence on the Commencement Date."
Clause 10 Garden Leave
"10.1 During his notice period or any part or parts thereof, or at any other time, the Company may in its absolute discretion require the Employee to perform any such duties or other such duties (including without limitation research projects) as it may allocate to him or not to perform any of his duties and may require him not to have any contact with clients of the Company or any Group Company nor any contact with such employees of the Company and any Group Company as the Company shall determine and/or may exclude him from any premises of the Company or of any Group Company (without providing any reason therefor) provided always that throughout the period of any such action referred to in this Clause ("Garden Leave") the Employee's Salary and contractual benefits shall continue to accrue or be paid or provided subject to the other provisions of this Agreement and Part 1; and
10.2 that any such action taken on the part of the Company shall not constitute a breach of this Agreement or Part 1 of any kind whatsoever nor shall the Employee have any claim against the Company or any Group Company in respect of any such action; and
10.3 that he shall during any such period remain readily contactable and available for work and, should he fail to make himself available for work having been requested by the Company to attend, he shall, notwithstanding any other provision of this Agreement and without prejudice to the Company's other rights and remedies, forfeit his right to Salary, bonus or any other remuneration in respect of such period of non-availability." [emphasis added]
The schedule to the Service Agreement provided:
"except in respect of any period of Garden Leave,… the Company may in its sole discretion pay bonuses to the Employee from time to time on the basis of the bonus policy set out below…"
Did the defendant promise to pay bonuses over the period of garden leave?
"we are proposing to make a change to your current contract with ICAP, whereby we remove your GMB, leaving all other contract details unchanged. We understand you want to think about this over your holiday. So we will continue this conversation in the week starting July 28" [C5/400]
"I refer to our recent conversation regarding placing you on Garden Leave."
2 Pay. Whilst you are on Garden Leave you will be paid your Salary (less deductions) and receive your benefits in the usual way."[emphasis added]
"5.1 Subject to the other provisions of this Agreement and except in respect of any period of Garden Leave, in addition to Salary, the Employee shall benefit from the bonus arrangements set out in the Schedule to this Agreement."
"if and to the extent that the Employee has been at work and performing his duties for the Company throughout the relevant bonus period… "
Was it an implied term of the Service Agreement that the defendant would not exercise its discretion to place the claimant on garden leave or continue the period of garden leave irrationally or perversely?
If there was such an implied term was the decision to place and keep him on garden leave for 15 months in breach of the implied term?
"18 Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties' bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given." [emphasis added]
"The court is entitled to investigate the action of the local authority with a view to seeing whether they have taken into account matters which they ought not to take into account, or conversely, have refused to take into account or neglected to take into account matters which they ought to take into account. Once that question is answered in favour of the local authority, it may still be possible to say that, although the local authority have kept within the four corners of the matters which they ought to consider, they have nevertheless come to a conclusion so unreasonable that no reasonable authority could ever have come to it."
Lady Hale continued:
"The first limb focuses on the decision-making process—whether the right matters have been taken into account in reaching the decision. The second focuses on its outcome—whether, even though the right things have been taken into account, the result is so outrageous that no reasonable decision-maker could have reached it. The latter is often used as a shorthand for the Wednesbury principle, but without necessarily excluding the former…"
"30 It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable—for example, a reasonable price or a reasonable term—the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose. For my part, I would include both limbs of the Wednesbury formulation in the rationality test. Indeed, I understand Lord Neuberger PSC (at para 103 of his judgment below) and I to be agreed as to the nature of the test."
If there was such an implied term was the decision to place and keep the claimant on garden leave for 15 months in breach of the implied term?
"The scope for abuse by an employer of a garden leave provision is well recognised...."
"There is a public policy against the compulsory sterilisation and potential atrophy of skills…"
and to the judgment of Dillon LJ in the earlier Court of Appeal authority of Provident Group plc v Hayward  ICR 160 referred to in the judgment of Warby J.
"the effect of it would be to keep this defendant out of employment completely and unable, therefore, to exercise his skills as a broker in any capacity. A broker's skills in the marketplace would tend, it seems to me, to atrophy at least to some extent during six months enforced leave. That would be neither reasonable inter partes nor in the public interest."
"… a six months enforced period of garden leave, even if in accordance with an express term of the contract, would in any event be likely to face resistance on the basis that its use amounts to a breach of the implied term of trust and confidence…."
" it would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the bank in fluctuating market and labour conditions."
"56 The scope for such scrutiny differs according to the nature of the decision which an employer makes. In this case clause 7 gave the employee a prima facie entitlement to the death benefit unless BP could satisfy itself of a factual circumstance which excluded the benefit. The nature of the exercise which BP had to undertake in deciding the cause of death was very different from the assessment of whether an employee was entitled to a discretionary bonus, which is an exercise that involves a qualitative judgment of the employee's performance.
57 In cases such as Clark v Nomura International plc , Keen v Commerzbank AG and Horkulak v Cantor Fitzgerald International  ICR 402 the courts have reviewed contractual decisions on the grant of performance-related bonuses where there were no specific criteria of performance or established formulae for calculating a bonus. In such cases the employee is entitled to a bona fide and rational exercise by the employer of its discretion. The courts are charged with enforcing that entitlement but there is little scope for intensive scrutiny of the decision-making process. The courts are in a much better position to review the good faith and rationality of the decision-making process where the issue is whether or not a state of fact existed, such as whether an employee's wilful act caused his death. The decision of the employer is not a judicial determination and the court cannot expect judicial reasoning. But I see no reason why an employer's decision-making should be subject to scrutiny that is any less intense than that which the court applies to the decision of a public authority which is charged with making a finding of fact..." [Emphasis added]
"as you will know, you are not entitled to keep me on garden leave indefinitely and I again request clarification of your position on this"
"the employee is entitled to a bona fide and rational exercise by the employer of its discretion. The courts are charged with enforcing that entitlement but there is little scope for intensive scrutiny of the decision-making process."
"57 During the currency of the employment relationship, when an express negative covenant or the implied duty of good faith apply to prevent an employee working for another employer, the doctrine of restraint of trade will not apply to such a restraint; nor is there a need to justify an express contractual garden leave provision by reference to this doctrine. However in circumstances where an employer has put an employee on garden leave and then seeks an injunction to restrain the unwilling employee from joining a competitor before the expiry of his notice period, an injunction to enforce or aid that period of garden leave must be considered in light of the restraint of trade doctrine. The fact that the employee agreed to the contractual provisions may be a factor in the court's consideration but it is not the only or primary factor. The scope for abuse by an employer of a garden leave provision is well recognised and I agree with Mr Quinn, that public policy considerations compel consideration of the restraint of trade doctrine in this context." [Emphasis added]
It seems to me therefore that this was in a very different context from the present circumstances where there has been no attempt by the employer to use the garden leave provision to restrain the claimant from leaving his employment and therefore it is very different from the authorities where the restraint of trade doctrine is engaged.
i) From the financial year 2010/2011 to 2014/2015 the desk performance slumped from a profit of approximately £3 million to a loss of nearly £680,000. Revenues in the same period fell from approximately £10.1 million to approximately £3.5 million.
ii) The revenues generated by the claimant from 2011 declined significantly.
iii) The claimant had been allocated a high number of profitable clients and given his responsibility for the more profitable lines, the subsequent deterioration in his revenue generation had a pronounced negative effect on the desk.
iv) In June/July 2004 Mr Vogels reviewed the performance of the desk and concluded that the claimant's revenue generation:"fell substantially short of expectations and was not compensated for by his managerial or leadership performance".Mr Vogels concluded that the level of contractual remuneration which the claimant was receiving could not be commercially justified and was a disproportionate drain on the desk's resources.
v) Mr Vogels had asked a number of other individuals on the desk to vary their contracts to adjust their remuneration to ensure the desk remained profitable. A number of other employees agreed to contractual variations to their remuneration. The claimant's role as a director meant that he needed to set an example to the other members of the desk.
vi) Mr Vogels asked the claimant to accept a variation to his contract by removing his entitlement to a guaranteed minimum bonus award. The claimant stated he would not accept any changes to his remuneration. The refusal to do so reflected a failure on his part to:"understand and adapt to the commercial realities of the desk's reduced revenue earning position.""In the circumstances" the defendant decided it was appropriate to place the claimant on garden leave.
|Financial year ending 31 March||Revenues of EGB desk||Bonus pool||Profit|
|2010/2011||£10.15 million||£3.13 million|
|2011/2012||£9.48 million||£2,094,781||£2.94 million|
|2013 (- July 2014)||€468,612|
"concern about the declining revenues and performances of both him and the desk."
It is clear on the evidence that the decision was based on the financial impact of the claimant's employment against the background of the declining revenues of the desk. Mr Vogels stated in cross examination:
"I knew Mr Faieta was a very senior member on the desk and had been able to generate more revenue in the past than he was able to generate at the time that we had this discussion, and sadly the reality had changed whereby the revenues that he created were no longer commensurate with the amount of money that we were paying him and that was really what was going through my mind." [Day 2/141/2 – 9]
"had a discussion with Employee 24 to say that if he could not agree to a reduction in his [guaranteed minimum bonus] then we had to review the position. But employee 24 took the view to say "I am prepared to talk about it" and in the end agreed to waive his bonus, but not have it documented as such in his contract."[Day2/128/20-25]
"By putting Mr Faieta on garden leave, we gave a signal that we were letting him go. We were intending to reach a reasonable, fair settlement with him. I have had that conversation with many people at the time and in every single one this is exactly what happened. Sadly, in Mr Faieta's case, we could not get to that point." [Day 2/143/18 – 23]
"In this particular case, with respect, not at all. We kept him on garden leave so that at least Mr Faieta had some income and benefits while we were trying in good faith to negotiate an exit package with Mr Faieta. We had really not in mind at all to enforce the garden leave provision for competitive reasons. We would have been delighted if Mr Faieta had said to us, "I have found another job. Let us settle our employment contract issues and I can move on with my life." That is honestly what we hoped would happen." [Day 2/151/1 – 10]
"the reality had changed whereby the revenues that he created were no longer commensurate with the amount of money that we were paying him"
"is that the context in which you were seeking the severance calculation being prepared for the outcome?"
"yes I knew Mr Faieta to be not particularly flexible, especially when it came to his contractual situation, so I was preparing for an unfavourable outcome, yes" [Day 2/page 92]
"I am aware this will be a difficult conversation and we have to be prepared for the outcome." [C5/390/982]
Have the right matters have been taken into account in reaching the decision?
"...where a statute conferring discretionary power provides no lexicon of the matters to be treated as relevant by the decision-maker, then it is for the decision-maker and not the court to conclude what is relevant subject only to Wednesbury review…"
"56 … It is submitted on the Defendant's behalf, however, that enforcement of his notice period obligations in the way that is sought would compel him either to work for the Claimant or to "face idleness" and that in these circumstances the Court's discretion should be exercised in the light of principles developed in cases concerned with the interaction between an employee's legitimate concern to work and the use of "garden leave" clauses. A garden leave clause is one which confers on the employer an express contractual right not to provide any work to the employee during the period of notice. The argument, in summary, is that it is not enough for the Defendant to be paid, he also has a legitimate concern to work; if he does not work for the Claimant and the injunction is granted as sought he cannot work for anybody else; he does not wish to work for the Claimant and cannot be forced to do so; hence, the practical effect of the grant of the injunction would be to compel idleness for the remainder of the notice period.
57 In my judgment this argument is ill-founded. The authorities relied on, which include the decisions of the Court of Appeal in Provident Financial Group v Hayward  ICR 160 , 165E, 168C to D per Dillon LJ and William Hill Organisation Ltd v Tucker  ICR 291 , 301H-302A, as well as GFI Group v Eaglestone  IRLR 119 and JM Finn and Co Ltd v Holliday (above), acknowledge the potential for abuse that is inherent in the exercise of the employer's rights under a garden leave provision. As Simler J explained in JM Finn and Co , :
"…the Court will be astute to recognise that the practice of long periods of garden leave is obviously capable of abuse. It is a weapon in the hands of the employer that might be used to ensure that an ambitious employee will not give notice if he is going to be unable to work at all for anyone else for a long period of notice…"
Thus, where an employer puts an employee on garden leave and then seeks an injunction to restrain them from working for another, public policy considerations compel the Court to approach the exercise of its discretion in the light of the doctrine of restraint of trade; the result may be that the Court grants no injunction, or one more limited in scope than the contractual provision: JM Finn & Co Ltd , ."
"58 The reason the law has developed in this way is, however, that in such cases the employer is exercising its contractual rights in such a way as to force the employee to be "idle" or, to put it more simply, not to work. There is a public policy against the compulsory sterilisation and potential atrophy of skills…" [Emphasis added]
"we require you to remain on garden leave "
and [C6/549] in July 2015:
"[we] require you to remain on garden leave".
The claimant submits that this brooks no possibility that the claimant was free to take up alternative work.
Is there a breach of the implied term of trust and confidence?
"I accept that the implied duty of trust and confidence between employer and employee will, generally, require an employer to give his reasons for the exercise his discretion to pay or withhold a bonus and to identify the decision-maker…"
"told me I had two options; either give up my guaranteed minimum bonus or carry on further conversations with HR and legal."
Counsel for the defendant then put to the claimant:
"So it was in that context, in other words the context of the discussion about the state of the market, the state of the European government bonds desk, and your own knowledge about those matters, and your own knowledge about your revenues, that he asked you to give up your guaranteed minimum bonus; correct?"
The claimant replied:
Losses for Wrongful Dismissal
Discretionary bonus and Additional Revenue Bonus
"I am confident that with the opening up of a broader client base and more liquidity from my existing clients, I would have generated increasingly more business and created even more liquidity for the desk. Often, I produced 20 – 25% of the total desk revenue and with me doing increasingly more business both between my own clients but also with other brokers on the desk, then the EGB Desk would become increasingly profitable. The potential addition of one or two hedge fund salesmen with good relationships would only increase overall volumes and desk liquidity and revenues." (Paragraph 211)
"I feel strongly that my volumes and revenues would have picked up on the second of 2014, the 2015 would been a good year 2016 and 2017 would have been my strongest and most profitable years ever." (Paragraph 218)
"whilst it is correct to say revenue numbers had dropped by the time I was placed on garden leave on 30 July 2014, there are a number of contributing factors e.g. the uncertainty and rumours being spread on a daily basis about pay cuts, the desk being shut down, losing both [employee 25] and [another] as bosses within a year, lack of continuity. These factors were outside my control…" (Paragraph 227)
Change in market sentiment and new opportunities in the market.
"had I been there on that desk, I can say categorically that I would have pushed like crazy to expand the customer base using my knowledge that I had built up over the years as a salesman. I would have got other guys on board and we would have started calling other customers."
"we now ask banks if they want us to trade directly for their clients. Sometimes the answer is yes and sometimes its no, but a few years ago asking the question would have ended our relationship."
"the door is at best ajar"
"certain banks still have big problems with others talking to buy side firms. And it was simply a way for me to test the water a little bit to see what kind of reaction I would get if I will put this out in the press." [Day 3/31 – 32]
Transfer to new desk in January 2017
"I know of no principle upon which he can claim as damages for breach of one service agreement compensation for remuneration which might become due under some imaginary future agreement which the defendants did not make with him but might done if they wished."
"client relationships and contacts are essential to secure alternative employment."
"to get my head round it"
He said he contacted some clients in late December 2015 and again in January 2016. However that was not mentioned in his witness statement nor is there any evidence of text messages or phone calls.
"Experienced and competent brokers generally get approached by competitors quickly."
"I also did not see any need to have mentioned this." (Paragraph 112)
"any such action taken on the part of the Company shall not constitute a breach of this Agreement or Part 1 of any kind whatsoever nor shall the Employee have any claim against the Company or any Group Company in respect of any such action; and"