Banks in the UK are expected to shrug off the perceived legal risks to issue a record level of 'zero bonuses' for 2011, says GQ Employment Law, the specialist employment law firm.
GQ explains that although banks are well within their rights to pay zero bonuses to London-based workers, in the past they have often taken the commercial decision to pay at least a modest bonus even to some poorly performing staff to:
• avoid the cost, the management time and the bad feeling of handling disputes with their workforce
• reduce the number of legal challenges they get from disgruntled employees
Paul Quain, Partner at GQ Employment Law, says: 'Banks in the UK are well within their rights not to award discretionary bonuses if they have a logical reason not to do so. However, year after year that doesn’t stop a wave of complaints from bank staff who feel that somehow they have been cheated'.
The law firm points out that it has become more difficult to succeed in a legal claim that a bonus is too low because the employee has to show the bank acted irrationally in not paying them a high enough bonus. That will be particularly difficult this year given the economic climate.
Quain adds: 'This year the banks’ legal case will be more watertight than ever due to market conditions and the fact that even the Bank of England has advised banks to preserve their capital by not paying out bonuses.
'Having said that, although the banks will have a robust case, there are still likely to be legal claims in the New Year because the concept of having the right to receive a discretionary bonus is now so strongly embedded in the minds of many bank staff. There is huge disconnect between bankers’ perception of their rights and the legal reality.
'Bankers seem to have an expectation that they are entitled to a bonus under almost any circumstances which has been fed by over 20 years of high bonus rounds, but banks actually have a lot of freedom to choose not to provide a bonus'.
Claims banks could face
GQ Employment Law explains that employees who are promised a bonus that they subsequently don’t receive will have the strongest legal claims.
Quain says: 'Banks have to be very careful that their managers do not suggest to new recruits or existing employees that their bonus will be of at least a certain value, otherwise they would expose themselves to legal claims if they fail to provide that minimum level of bonus. A verbal assurance can be enough'.
City staff will try to bring bonus claims in the employment tribunal under discrimination rules because there is no risk that they will have to pay for the bank’s legal costs of the dispute if they lose.
Quain adds: 'Banks have to be very careful when dividing their bonus pools not to spark discrimination claims. They have to have a clear rationale as to why each team member got their level of bonus. If the split even looks like it is based on gender or age, for example, the bank could have to explain its rationale in front of a UK Employment Tribunal in a dispute'.