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April 17, 2014

Bonuses: Announcements at UK Town Hall Meetings Can Create Enforceable Individual Contractual Entitlements

In Dresdner Kleinwort and Commerzbank v Attrill & others, the Court of Appeal of England and Wales has upheld a High Court decision that 104 former employees were contractually entitled to bonuses totalling more than £50 million.  Significantly for employers, the entitlement arose out of an announcement made by the bank’s then CEO to a group of employees in a Town Hall meeting.

What Happened?

The meeting with employees took place during a period of uncertainty after the announcement of the sale at a future date of Dresdner to Commerzbank, amidst fears of a “mass exodus” and heightened regulatory scrutiny from the Financial Services Authority.  In order to try to put a stop to employee departures, the CEO announced a guaranteed minimum bonus pool for that year of €400 million.  As a result of increasingly poor market conditions and a rapidly changing political landscape, the bank subsequently sought to significantly reduce the overall amounts payable as bonus.  A group of employees brought claims, arguing that they were contractually entitled to higher bonuses based on the commitment made at the Town Hall meeting.

What Was The Court’s Decision?

The Court found that the statement made to employees at the Town Hall meeting had been intended to give rise to a legally binding commitment and that it was sufficiently certain to be enforceable by individual employees.  This was so notwithstanding that the amount any particular individual would receive was discretionary and therefore not specified at the time the commitment was made.

In reaching its decision, the Court of Appeal made clear that “Where a term is being introduced into a pre-existing contractual relationship, there will be a very strong presumption that it is intended to be legally binding.”

What does this mean for employers?

The particular facts of the Commerzbank case are unlikely to be repeated.  Employers should, however, be aware that this case may make it more likely that employees will seek to rely on, and enforce, similar oral commitments.  It is not uncommon for managers to want to encourage employees part way through a bonus year by telling them, for example, that bonuses will be equivalent to last year’s.  That is fine in principle, but suitable words of qualification should be made, such as “if business continues as it is” or “assuming no material changes in market conditions”, to avoid such statements becoming contractual commitments.  Managers should be cautioned against over-optimism that the organisation may later come to regret.

© 2014 McDermott Will & Emery

About the Author

Katie Clark, McDermott WIll Emery Law Firm, Labor employment attorney
Partner

Katie Clark is a partner in the law firm of McDermott Will & Emery UK LLP, based in its London office.  Her practice focuses on contentious and non-contentious employment matters. 

Katie is recognised as a leader in her field in Chambers UK 2011.  She is described as a “recognised force for her advocacy and commercial employment advice”, Chambers UK 2010 and as “very knowledgeable, superbly responsive, and no-nonsense…” Legal 500 UK 2011.

Her clients include global corporations, financial...

+44 20 7577 3492

About the Author

Associate

Paul McGrath is an associate in the law firm of McDermott Will & Emery UK LLP, based in its London office. His practice covers all areas of contentious and non-contentious employment law in the UK.

44-20-7577-6914

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