Bankers’ Bonus Payments

The issue of bankers’ bonuses has been in the news a fair bit recently. I noticed that this publicity coincided with a recent decision of the Court of Appeal in England which dealt with bankers bonus payments. In Fish and anor v Dresdner Kleinwort Ltd; Hatzistefanis and ors v Dresdner Kleinwort Ltd and anor, the High Court held that a group of bankers were contractually entitled to receive bonuses and termination payments totalling €12.6 million.

The Bank’s somewhat novel defence was that it was contrary to duties of good faith owed by the bankers to the Bank for the bankers to insist on payment of the sums in question in the context of the recent financial history of the defendants’ group.

The Court decided that the bankers were not under any legal duty to give up these payments, even though their employer faced serious financial difficulties due to the global recession.

The point you might want to take from this is that where employees are entitled to bonuses by virtue of their employment contracts, the employer cannot rely upon events such as an unforseen global recession as an excuse not to pay out unless the contract has been carefully worded to allow for this. As a result of this decision it is likely that in the future such clauses will be drafted more tightly to allow for greater flexibility.

Of course, this issue is becoming increasingly more political. President Obama has cracked down on bankers’ bonuses in the US and Gordon Brown has vowed to do the same in the UK. It remains to be seen what steps will be taken by the Government on this issue.