The Court of Appeal in England has upheld a High Court award of more than €50 million in bonuses to a group of 104 bankers (Attrill & Ors v Dresdner Kleinwort and Commerzbank (2012)). In the course of the judgment released on 26 April, the Court gave direction on the circumstances in which promises made by an employer during the employment relationship will become contractual, in this case a general announcement to staff. The findings have serious implications for employers in Ireland also, where decisions of the UK Courts on general contract law principles are often followed.
Background: The case concerned an announcement made in 2008 by the CEO of Dresdner Kleinwort’s investment banking division at a general “town hall” meeting to staff and a subsequent intranet broadcast that a guaranteed minimum bonus pool of €400 million would be available to staff and divided on a discretionary basis, according to individual performance. The bonus pool had been created to stem the tide of key staff departures and had been approved by the bank’s board.
In 2009 Commerzbank, having subsequently taken over Dresdner Kleinwort, reduced the bonus pool by 90% due to the onset of the banking crisis, and on the premise that the staff communications were not contractually binding.
Court findings: In 2012, the High Court held that the collective announcement to staff was intended to create a legally binding obligation and that accordingly the reduction in the bonus pool was a breach of contract. The Court of Appeal’s decision essentially endorses this. However the decision has broader implications due to the Court’s specific findings on some core points of contract law in the employment context. In summary the Court found that:
- the announcement of the bonus pool was an offer and that due to the general manner in which it was made to staff collectively, the bank removed the need for any formal response to the offer. The Court held that the “only sensible implication is that all employees who might potentially benefit from the promise would be deemed to accept it”;
- while there was a degree of imprecision to the scheme, the fundamental rules of the scheme were clear. It was understood by all parties that the bonus would be dealt with “in the usual way”, meaning that confirmed fixed bonuses would be awarded and discretionary bonuses paid from the fund. The loose ends did not create enough uncertainty to conclude that the parties did not intend to create an agreement;
- the bank’s claim that there was no consideration, or anything given in exchange, for the benefit by the individual employees was also held to be incorrect. The Court stated the claimants had in fact given good consideration by deciding to stay at the bank (which was overall the main purpose of making the announcement), and the bonus pool would have played a factor in the employees making that decision; and
- where a term is introduced into a pre-existing contractual relationship, in this case the employment relationship, there would be a very strong presumption that it was intended to be legally binding. There would be an onus on the party asserting that there was no intention to create legal relations to establish the fact.
Implications for employers: Although this is an English Court of Appeal decision, it holds persuasive authority in the Irish courts where UK caselaw is often used to help plead a case, even if not legally binding. The findings have implications not only for employers in the Irish financial services sector, where bonus arrangements have traditionally been part of the remuneration structure, but for employers in all sectors engaging in discussions with staff on benefit changes.