Performance ratio clause dispute: 'High-performing' worker claims unpaid bonuses

The General Division of Singapore's High Court recently dealt with an employment dispute involving a high-performing broker in the financial sector. The case revolved around issues of contractual interpretation, performance ratios, and discretionary bonuses, shedding light on important aspects of employment law in Singapore.

This case serves as a cautionary tale for employees and employers alike, highlighting the importance of thoroughly understanding employment contracts and the potential consequences of relying too heavily on informal agreements or personal relationships in the workplace.

The court's decision touched on several key areas of employment law, including the enforceability of performance clauses, the discretionary nature of bonuses, and the implied duty of mutual trust and confidence in employment relationships.

Worker’s career growth

According to records, the worker who had an impressive career trajectory in the financial sector. Initially employed as a server at a restaurant, the worker was recruited into the world of financial trading at a brokerage firm.

Within a short span of about five years, the worker had become a top performer in Indian Rupee non-deliverable forwards (NDFs) in Singapore.

The worker's success caught the attention of rival brokerages, leading to a series of job changes. The worker was first employed at one brokerage firm from August 2011 to January 2017, then moved to another from May 2017 to September 2017.

In November 2017, the worker joined the employer, a group of companies in the inter-dealer broking business.

The employer provided the worker with substantial loans as part of the employment agreement. These loans included a sum of S$1,569,210.20 to settle disputes with previous employers, and a sign-on bonus of S$980,000.00 to be paid in instalments. The worker commenced employment with the employer in February 2018.

Performance ratio and contractual obligations

At the heart of the dispute was a performance ratio clause in the employment agreement. This clause stipulated that the worker's Individual Net Revenue should be at least 2.5 times their Direct Employment Costs over a three-month assessment period.

If this ratio was not met, the employer had the discretion to reduce the worker's salary or terminate their employment.

The worker argued that this performance ratio was not part of the original oral agreement and that the written employment agreement should be void under the doctrine of non est factum. This legal principle allows a party to escape the consequences of signing a document if there is a radical difference between what was signed and what the party thought they were signing.

The court, however, rejected this argument. It found that the performance ratio clause was not radically different from the terms of the alleged oral agreement. The court emphasized:

"Even on the [worker's] own case, his monthly target was subject to some form of calculation that took into account the costs of the [worker's] employment."

This highlighted that the concept of performance-based evaluation was not entirely foreign to the worker's understanding of the employment terms.

Discretionary bonuses, employer's right to withhold

Another significant aspect of the case was the dispute over unpaid bonuses. The worker claimed entitlement to bonuses for the period of January 2021 to March 2021, while the employer argued that the bonuses were discretionary and had been rightfully withheld due to the worker's alleged misconduct.

The court examined the bonus clause in the employment agreement and concluded that the bonuses were indeed discretionary. The court noted:

"Based on a holistic reading, I find that entitlement to bonus payment is discretionary."

This interpretation was based on the language used in the agreement, which stated that the worker would be "eligible" for a bonus, not "entitled" to it.

The employer provided several reasons for withholding the bonuses, including the worker's alleged refusal to share information and prices with colleagues, failure to encourage clients to use a new electronic trading platform, unwillingness to distribute customer lines with colleagues, and absence from work without leave or reasonable excuse.

Clear communication and documentation

The case underscored the critical importance of clear communication and proper documentation in employment relationships. The court's decision highlighted how reliance on verbal agreements or assumptions can lead to misunderstandings and disputes.

The court observed:

"This case presents a cautionary tale of the importance of reading and understanding that contract and not putting our careers into someone else's hands. The court will be reluctant to help those who do not help themselves."

This statement emphasised the responsibility of employees to carefully review and understand their employment contracts, rather than relying solely on verbal assurances or personal relationships.

The court's decision reminded employers that bonus structures should be explicitly stated as discretionary if that is the intention. Regular performance evaluations and feedback can help prevent misunderstandings about expectations and performance standards.

Consequently, the court upheld the employer's right to terminate the worker's employment based on the performance ratio clause and found that the withholding of bonuses was within the employer's discretion. The worker's employment was terminated in September 2021, and the employer claimed repayment of the loans provided at the start of employment.

The court ruled in favour of the employer, ordering the worker to repay the loans with interest. The case serves as a reminder of the importance of clear contractual terms and the potential pitfalls of relying on informal understandings in employment relationships.