The recent case of Dresdner Kleinwort Limited and Commerzbank AG V Attrill & Others (EWCA2013) was a decision of the Court of Appeal in relation to whether an employer was contractually bound to pay bonuses to employees. The decision turned on the specific facts of the case and the circumstances in which the commitment was made. Although it relates to employment contracts it did restate general principles of contract law and is a useful reminder of basic contract principles.
The original claimants were employees in Dresdner Bank Group. Shortly before a take-over of the bank was announced Dresdner Bank announced to its employees, in a meeting broadcast over the company intranet, that the Board had approved a guaranteed minimum bonus pool, which would be allocated to individuals on a discretionary basis, according to individuals performing in the usual way.
The aim of the announcement was to encourage employees to remain part of Dresdner Bank during the course of significant speculation about the company’s future. Subsequent to this the employees were provisionally awarded, by letter, a discretionary bonus, subject a material adverse change clause.
On the same day employees were reassured at a further meeting that the material adverse change clause was unlikely to be invoked. It was subsequently in fact invoked and the bank attempted to avoid paying the bonuses previously identified.
The issues that arose were whether or not the announcement created an obligation to pay the bonus sums claimed, and whether the introduction of the material adverse change clause was a breach of the implied duty of mutual trust and confidence.
In the first instance the answer to the question was affected by the employee’s terms and conditions which allowed a variation in certain specified circumstances. It also involved a consideration of whether the announcement was intended to be legally and binding and whether it was necessary for the employees to communicate acceptance of the offer.
At both first instance and at appeal the Court held that:
- The statement announced to the employees in the Town Hall meeting had been a variation, effective in accordance with the contract. In addition there was overwhelming evidence that Dresdner Bank had intended this promise to be legally binding. The Court noted that where a term was introduced into a pre-existing contractual relationship there was a strong presumption that it was intended to be legally binding
- The employees did not have any positive obligation to formally accept the bonus offer. The Court took the view that to require anything different would have resulted in the possibility of the bank having to pay the bonus pool to potentially only a small number of employees if only a small number had responded and formally accepted the proposal
The Court also went on to say that the introduction of the material adverse change was a breach of the implied duty of mutual trust and confidence as it was introduced after the original variation had been introduced.
It should be noted that in coming to its decision the Court looked in detail at the elements necessary for the formation of a contract or a contractual obligation.