Banker bonus

24 May 2013

In the recent case of Dresder Kleinwort Limited v Commerzbank AG v Attrill and others [2013] EWCA Civ 394, the Court of Appeal held that the announcement of a guaranteed bonus pool offered to employees at a time when there was uncertainty in the company amounted to a contractually binding obligation, despite not being strictly in the form dictated by the company’s employee handbook.

In this case, Dresdner Bank AG was going through a change of ownership and as result, the employees were uncertain about their future within the company.  The management decided that there should be some kind of staff retention scheme to prevent the damaging departure of staff.  It was announced to the employees over the company intranet and during a Town Hall meeting that a guaranteed bonus pool had been created for their benefit.

Following the collapse of Lehman Brothers and the financial crisis which ensued, the company attempted to alter the bonus letters which were to be sent out, stating that there had been a material adverse change and that the bonus payment now depended on the bank’s performance.  The Court of Appeal was required to decide whether there was a binding contract in place between the company and the employees.

The strict reading of the relevant clause in the employee handbook required that any changes to terms and conditions of employment must be made by a member of the HR department and must be communicated in writing.  It also stated that when change affected a group of employees, notification could be by display on notice boards or the company intranet.

The Court of Appeal held that there had been a unilateral variation of the employee’s terms in accordance with the staff handbook even though employees had not received separate individual written communication and the initial announcement was not made by a member of the HR department.  It was held that the announcement had been sufficiently certain to be enforceable.

Our view

Employers should consider the potential risks when making announcements to groups of employees.  Despite the terms in the employee handbook, it may be found that an announcement amounts to an intention to create legal relations. Employers should consider their actions objectively and ensure that the intention behind any announcement is made clear and documented appropriately.
The above mentioned case also considered the FAQ section of the company’s intranet and whether it served to display the message in relation to the bonus pool.  Employers should be reminded to state exactly what form of media is permitted when requiring information to be displayed, written or announced.  This is increasingly relevant given the wide forms of media which are available.