Employees Successfully Claim Bonus from Bank

In the case of Attrill & others v Dresdner Kleinwort Ltd and another company the claimants were employees of the first defendant bank (‘the bank’). Their contracts of employment incorporated the bank's employee handbook. Part of the handbook (section 1.4) conferred on the bank the power to unilaterally vary the contract. It also stated that when a change affected a group of employees, notification could be made by display on the notices boards or the bank's intranet.

In August 2008, it was announced that the bank's owner (Allianz) had agreed to sell the bank to the second defendant company (Commerzbank). As a result, the bank's senior management and the Financial Services Authority expressed concern that there was a risk of a mass exodus of staff. The bank announced the creation of a guaranteed retention bonus pool. The announcement was made at a 'Town Hall' meeting and simultaneously broadcast on the bank's intranet. In October 2008, the bank's human resources department emailed the bank's employees stating that bonuses would be paid in full in January 2009. In December 2008, there was a meeting of the bank's board, at which the board resolved to introduce a material adverse change clause into the bonus letters, stating that the bonus would be adjusted if material negative deviations in the bank's revenue were established. Therefore, the bank wrote again to its employees stating that the bank's financial position would be reviewed in January 2009 and that the bank reserved the right to review the payment of bonuses and, if necessary, to reduce it.  In February 2009 the bank decided to reduce the bonus by 90% and, in some cases, to not pay a bonus at all.

The claimants issued proceedings claiming sums due as bonuses. The primary issues before the judge were whether the announcement of August 2008 had created a binding obligation on the bank to pay the claimants, and whether the introduction of the MAC clause had amounted to a breach of the implied duty of mutual trust and confidence. The judge found:

  • that the announcement of August 2008 had created a binding legal obligation. He found that the guaranteed bonus pool had been created to stabilise the work force, that it had arisen in response to the FSA's concerns, that both the decision to establish the pool and the method of communicating it had been approved by the bank's relevant committee, and that the reference to 'guaranteed' had been strongly indicative of an intention to undertake a binding legal obligation.
  • that the MAC clause had been introduced as a means of enabling the bank to go back on its earlier promise rather than, as the bank submitted, as a response to changing adverse circumstances, and he found that the MAC clause had undermined the trust and confidence between the bank and the claimants.

The bank appealed, and the issues for determination were,

  • whether the announcement of the bonus had created a binding obligation on the bank to pay the claimants (the bank submitted that the judge had been wrong to conclude that the burden of proof was on the bank to show that there had been no intention to create legal relations); and
  • whether the introduction of the MAC clause had amounted to a breach of the implied duty of mutual trust and confidence (the bank submitted that the judge had failed to focus on why the bank had introduced the MAC clause, and instead had concentrated on the reasons why Commerzbank had wanted to adopt it.)

The appeal would be dismissed.

  1. Where a term was being introduced into a pre-exiting contractual relationship, there was a very strong presumption that it was intended to be legally binding, and the onus would be on the party asserting that there was no intention to create legal relations to establish that fact
  2. The judge had explained why he had taken the view that the guiding hand behind the incorporation of the MAC clause had been Commerzbank. There had been an abundance of evidence which had supported that inference, and the judge had been entitled to have had regard to the fact that no-one from Allianz or the bank had explained why the decision had been taken. The fact that the promise of the bonus pool had been reiterated so frequently, even after the dramatic financial collapse in 2008, had suggested that those had not been the principal reasons why the bank had thought it necessary to introduce the MAC clause.

Accordingly, the appeal would be dismissed as there had been an effective unilateral contractual amendment pursuant to section 1.4 of the handbook, and there had been, in any event, a binding contractual promise resulting from the terms of the promise and the circumstances in which it had been made.

 

Nick Barnett

Published on 29/11/2013

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