Bankers Contractually Entitled to Bonus Payments
An employer was contractually bound to pay bonuses to employees from a guaranteed bonus pool announced at a staff meeting.
In Dresdner Kleinwort Ltd and Commerzbank AG v Attrill and others, the claimants were contractually entitled to be considered for an annual discretionary bonus. Individual allocations were made from a bonus pool each November, employees were told how much they would receive by letter each December and the bonus was paid in January. Following a decision that the bank’s investment division would be sold, the Board approved a guaranteed minimum bonus pool to encourage employees to stay. The pool was announced to employees at a staff meeting in August and they were told that it would be allocated according to individual performance “in the usual way” and would be distributed “no matter what”. Staff were continually assured that the bonus pool remained in place, notwithstanding the banking crisis
However, when the employees were notified of their provisional bonus awards in December, they were told that the amount would be reduced if the Bank’s actual revenue was materially less than forecast. Relying on this provision, the Bank sought to reduce bonus payments by 90%.
The claimants claimed breach of contract, arguing that they were entitled to the amount originally notified to them. The High Court upheld their claims and the Court of Appeal upheld its decision. The CA upheld the High Court decision.
The staff meeting announcement and subsequent statements guaranteeing the bonus pool amounted to a unilateral variation to the employees’ terms, in accordance with the terms of the employee handbook which permitted the employer to vary terms unilaterally. As such, there was no need for the change to be accepted in order for it to be legally enforceable. Even if that were not the case, it is open to a person making an offer to dispense with the need for acceptance and the Bank had done so. This was a promise without any disadvantage to the employees and acceptance would be a formal and unnecessary exercise.
There was no reason why the promise that the bank would pay out bonuses of at least EUR400m should not be enforced as a contractual term. It was sufficiently clear in its terms and the fact that the Bank chose to implement the contractual change by way of a global staff announcement did not mean there was no intention to create legally enforceable obligations. Its promise was made in the context of an existing legal relationship and the natural inference was that any promises made relating to terms of employment would take effect in the same way as other contractual terms.
In addition, the Bank’s attempt to reduce the bonuses payable if its actual revenue was materially less than forecast amounted to a breach of the implied term of trust and confidence.
The Bank has confirmed that it does not intend to appeal the Court of Appeal’s decision.
Employers need to be careful when discussing bonuses and other benefits with employees. Contractual commitments can arise, even where nothing is put in writing, if discussions are couched in terms which are sufficiently certain and an intention to create legally enforceable obligations can be inferred. The Court of Appeal decision in this case highlights a presumption that promises made in the context of the legally binding relationship of employer/employee will be legally enforceable. Where it is not intended that a commitment should be legally binding this fact needs to be made absolutely clear. Employers should ensure that any conditions for the payment of bonuses are made absolutely clear and that when drafting bonus documentation they anticipate and provide for any events that might result in a reduced bonus payment.
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