A multimillion pound ruling in favour of a group of bankers may not find widespread public favour in the current climate. But the High Court’s well publicised judgment in Attrill v Dresdner Kleinwort and Commerzbank has implications for the financial sector and beyond. It’s a salutary warning to employers about the need for caution when communicating with staff about remuneration.
In essence, the Court upheld a claim, based on verbal promises, by 104 investment bankers for unpaid bonuses totalling EUR 52 million. Faced with an uncertain future and a destabilised workforce, Dresdner Kleinwort’s board had approved a guaranteed minimum EUR 400 million bonus pool, which was communicated to staff at a "town hall" meeting and on the bank’s intranet.
The bank then issued bonus letters notifying employees of their provisional discretionary bonus awards, but stating that these were subject to a "material adverse change" clause. Following the sale of Dresdner Kleinwort to Commerzbank, staff were told that the clause was being invoked and the provisional bonuses reduced by 90%.
The employees’ claims for breach of contract were upheld, on the basis that the promise about the size of the pool was sufficiently certain to be contractually binding. There was no reason in principle why an announcement addressed to an entire workforce should not give rise to contractual obligations, provided it was couched in sufficiently certain terms.
As for introducing the “material adverse change” clause, this was a breach of the implied term of trust and confidence as it was simply a means of enabling the bank to renege on its promise. And even if the bank had been entitled to rely on the clause, it had failed to conduct the required assessment as to whether there had been a material adverse change.
It can sometimes be tempting to “over-promise” about pay. This case underlines the importance of all managers involved in compensation decisions taking great care over the content of communications about bonus pools and individual awards. “If in doubt, say nothing” is a maxim well worth remembering! Or, if you feel you do have to say something, give yourself as much future room for manoeuvre as possible.
Here’s a link to our more detailed report of the case.