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Banking on a lesson in promised bonus payments

View profile for Howard Robson
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As banker bonuses continue to draw negative headlines, a €50 million payout to bank staff has been forced to go ahead after a bank’s offer at a ‘town hall’ meeting was found to be legally binding.

Banker bonuses in the City of London may seem a world away from the day to day concerns of most businesses, but following a recent ruling on a promised bonus payout at Dresdner Kleinwort, Employment Partner, Howard Robson, advises that there is a real lesson to learn.

An award of more than €50 million in bonuses has been paid to a group of 104 city bankers after the ruling by the Court of Appeal, which has opened the way for promises made by employers during general staff communications to become contractually binding.

The case arose as a result of an announcement made in 2008 by the CEO of Dresdner Kleinwort’s investment banking division at a “town hall” meeting to staff, which was repeated in a subsequent intranet broadcast, that a guaranteed minimum bonus pool of €400 million would be available for dividing on a discretionary basis according to individual performances. The bonus pool had been approved by the bank’s board in an attempt to stop key staff leaving.

Dresdner Kleinwort was subsequently taken over by Commerzbank, who decided to reduce the bonus pool by 90% in 2009 following the banking crisis, saying that the staff communications were not contractually binding on the bank.

In 2012, the High Court ruled that the intention of the collective staff announcement was to create a legally binding obligation; hence the reduction in the bonus pool was a breach of contract. The bank appealed against the ruling, but the original decision has now been upheld by the Court of Appeal.  Commerzbank had argued that they had had no intention to establish ‘legal relations’ through the original announcement.  They also argued that the terms were uncertain and therefore not legally binding.

The Court ruled that the announcement could be taken as a formal offer because of the way that it was delivered, which removed the need for formal acceptance.  And although elements of the scheme were uncertain, the Court found that the fundamental rules of the bonus scheme were clear and there was not enough ‘uncertainty’ to believe that both sides did not intend to create an agreement on the bonus.

The ruling also said that where any new conditions were introduced into an existing contractual relationship, there would be a strong presumption that it was intended to be legally binding and so it was down to the employer to make it clear if there was no such intention to create legal relations. An employer is expected to know its own intentions.

Howard comments: “The ruling has significant implications for employment contracts.  It’s a case of ‘watch your words’ for employers if you want to be sure that discussions remain just that and don’t morph into a binding offer to employees. This is particularly the case when negotiating benefits and bonuses in a group session with staff. It is wise to seek professional HR or legal advice before such announcements are released. Particular care should be taken with intranet or social media announcements or group emails”.  

If you would like further information or advice about employment contracts contact Howard or the Warner Goodman Commercial Team on 02380 717717 or visit the website www.warnergoodman.co.uk.

Attrill & Ors v Dresdner Kleinwort Ltd & Anor [2012] EWHC 1189 (QB) (09 May 2012)

ENDS

This is for information purposes only and is no substitute for, and should not be interpreted as, legal advice.  All content was correct at the time of publishing and we cannot be held responsible for any changes that may invalidate this article.