In the High Court case of Attrill and others v Dresdner Kleinwort, employees succeeded in their argument that their employer was contractually obliged to pay bonuses from a guaranteed minimum bonus pool of €400 million (£343 million) it had promised to set up.
The court ruled that the bank had acted in breach of contract when it reduced the bonus pool and the size of bonus awards.
Paul Griffin, head of employment and labour at Norton Rose Fulbright, said: “To an extent, there is something for every employer to be worried about with this decision.”
The case arose after Allianz’s announcement of the possible sale of Dresdner Kleinwort in 2008 caused a lot of staff uncertainty. Subsequently, the chief executive officer of Allianz called a ‘town hall’ meeting that guaranteed to set up a minimum bonus pool, from which bonuses would be paid in early 2009.
Some staff were awarded guaranteed bonuses at that time. In December 2008, individual discretionary bonuses were awarded, which were to be paid the following January. However, the bank said these were subject to a material adverse change clause, which meant the bonuses did not have to be paid if there were material changes in the bank’s position in November or December.
In the event, the discretionary bonuses announced in December 2008 were reduced by 90%. Employees who had been awarded a guaranteed bonus were paid, but did not receive any element of discretionary bonus.
The Court of Appeal agreed with the High Court’s earlier decision that the August 2008 announcement created a contractual obligation to create a €400m bonus pool. This was a change to the employees’ terms and conditions of employment and did not need to be accepted by each individual employee.
Ed Bowyer, an employment partner at law firm Hogan Lovells, said: “While the facts of the case are unique, the judgment sends a warning to employers that where a clear promise is made to staff that substantial bonuses will be awarded, the courts will hold them to that promise even where finances of the business change and making such bonuses is no longer in the financial best interests of the employer.”
However, Bhavika Badola, an employment solicitor at law firm Shoosmiths, said the case would have a limited effect on employers, but they should remain wary. “Generally, employers should avoid general statements, avoid particular words like ‘guarantee’ and ‘minimum’, and, if at all possible, avoid making those commitments at all.”
She said the case may make dialogue between employees and employers more difficult because employers could be concerned that anything they say could give rise to a contractual obligation.