October 30, 2014
October 29, 2014
October 28, 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.
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.
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