The Court of Appeal ruling on a dispute between 104 London-based bankers and Dresdner Kleinwort (now part of Commerzbank) over a guaranteed minimum bonus pool of $521m has been handed down, says GQ Employment Law, the specialist employment law firm.
The appeal resulted from a High Court decision overwhelmingly in favour of the bankers.
Paul Quain, Partner at GQ Employment Law, who worked on the dispute, comments:
'The High Court ruling was quite radical and I’m surprised that it’s been so strongly endorsed by the Court of Appeal. This is going to cause significant problems for financial services employers.
'This ruling confirms that banks need to be extremely cautious when communicating with staff about their pay and bonuses, even in an informal manner. If they are not careful they run the risk of being held to any promises they make, even if that was not their intent.
'Disgruntled bankers could bring claims against their employer that a casual promise by their manager about a bonus amounted to a binding contractual agreement.
'Banks are now discouraged from using group methods for communicating with staff, such as ‘Town Hall meetings’ which had become increasingly popular prior to the High Court decision. They won’t want to risk inadvertently making expensive binding promises to large numbers of staff.
'The Court of Appeal did not accept the bank’s view that the financial crisis had a significant impact on the bank’s decision to lower the bonuses, and in fact make very little reference to the context of the financial crisis or the fact that Dresdner quite possibly could have gone under.
'This judgment clearly shows that promises made to an employee must be met by employers even if the business is teetering on the brink of insolvency.
'This litigation has been running for over four years and it is open to Commerzbank to try to appeal the ruling in the Supreme Court'.
Explanation of the ruling
In August 2008 the then Dresdner Kleinwort Chief Executive, Stefan Jentzsch, announced in a meeting with staff they would receive a guaranteed minimum bonus pool of $521m.
This was not paid to the bankers, after Dresdner Kleinwort suffered huge financial losses as a result of the credit crunch.
104 London-based bankers launched the claim, arguing that they were entitled to the rest of their provisional bonus awards (of which they had only received 10%).
The Court has upheld the High Court decision in full, which ruled that:
- Stefan Jentzsch’s announcement of a guaranteed bonus pool had contractual effect
- Commerzbank was unable to rely on a 'material adverse change clause' which would have allowed it to reduce individual bonuses because of the bank’s poor performance
The claimant bankers are therefore entitled to the rest of their provisional bonus awards.