• When contractual discretion is not all it seems
    Employment contracts contain sometimes contain discretionary powers and these allow an employer to make decisions affecting the employment relationship. Common examples include mobility clauses and the power to change hours. Such discretions are often expressed to allow employers to make whatever decision they consider to be reasonable.

    The Supreme Court, in Braganza v BP 2015, decided that employers’ discretion is limited to the extent that they must take only into account relevant factors and must not have made a decision which is so unreasonable that no reasonable employer could ever have come to it.

    Is this a change to the previous position?
    Case law had already placed significant limitations on how employers can exercise such powers in that it was already clear that where an employer wants to use a contractual clause to make changes, this power must be exercised honestly and in good faith and by taking into account the context of the contract.

    Discretions or decision making powers must not be exercised arbitrarily, capriciously, perversely or irrationally.

    Facts of the Braganza Case
    Braganza is an example of extreme facts, making for very difficult legal judgments. Mr Braganza was a chief engineer for BP on an oil tanker. He died when he went overboard whilst on the ship British, Unity. He had life cover with BP and his employment contract said no pay out was due “if in the reasonable opinion of the Company … the death resulted from … the Officer’s wilful act, default or misconduct”.

    The contract gave BP the power to decide, in its reasonable opinion, the cause of death.

    BP investigated over 4 months and they concluded he committed suicide, meaning they did not have to provide life cover. Mr Braganza’s widow argued that BP in exercising its decision making power should have been required to do so, based on better evidence and that in essence, their decision was irrational or perverse.

    She won by a 3:2 majority verdict.

    So what does this mean?
    This case represents the latest evolution in the concept that an employment contract is a special “relational contract” to which higher standards and scrutiny apply than would be the case in a normal commercial relationship. It is also a stark reminder that employment contracts need to carefully worded and carefully considered when seeking to grant or to exercise any powers or discretions given by the contract to an employer. We can, therefore, expect an increase in challenges to employer rely on these discretionary clauses, not only because of the decision reached but also on the thoroughness of the procedure used to reach that decision.

    This content is correct at time of publication

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