Banking on a lesson in promised bonus payments

Banker bonuses may seem a world away from small business, but there is a lesson to learn following a recent ruling on a promised bonus payout at Dresdner Kleinwort, which the bank subsequently tried to cut back.

An award of more than €50 million in bonuses has been paid to a group of 104 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 general “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 performance. The bonus pool had been approved by the bank’s board in an attempt to stop key staff leaving as the business was being sold.

Dresdner Kleinwort was subsequently taken over by Commerzbank, who reduced the bonus pool by 90% in 2009 after the banking crisis hit, saying that the staff communications were not contractually binding.

In 2012, the High Court ruled that the intention of the collective staff announcement was to create a legally binding obligation and so the reduction in the bonus pool was a breach of contract. The bank appealed against the ruling, but this 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 that the judge should not consider matters not known to the employees when interpreting the offer.

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 fundamental rules were clear and there was not enough uncertainty to think that both sides did not intend to create an agreement.

The Court also rejected the bank’s claim that there was no consideration for the benefit by the individual employees, saying this had been shown by the employees deciding to stay at the bank, which was the main purpose of the announcement and had been influenced by the offer of the bonus pool.

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 intention to create legal relations.

Said employment law specialist Claire Mac Mahon of Grant Saw Solicitors: “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 discussion remains discussion and doesn’t become a fixed offer to employees, particularly when negotiating benefits in a group session.”

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

This is not legal advice; it is intended to provide information of general interest about current legal issues.