A group of former Dresdner Kleinwort bankers hit the headlines recently over their €50 million bonus claim against Dresdner and its owner, Commerzbank, being heard in the High Court. The case is controversial, given the current public debate on how much bankers should be paid, but the result will depend on contract law rather than public opinion. The outcome may clarify when employers’ statements have contractual effect, but it’s likely that future bankers’ bonus claims will continue to be decided essentially on their individual facts.

Bank sale
Dresdner Bank was effectively put up for sale in March 2008. Employees in the investment banking division, Dresdner Kleinwort, started leaving due to its uncertain future. The Financial Services Authority put the firm on its ‘watchlist’ and demanded a plan to reduce the risks arising from staff departures. Dresdner Kleinwort’s chief executive consequently announced a guaranteed minimum bonus pool of €400m at a ‘town hall’ meeting in August in order to shore up staff morale and retain staff until the end of the year. Employees were told individual discretionary bonuses were not guaranteed but would be allocated from that pool in the usual way. These statements were subsequently repeated several times.

Letters
In December Dresdner Kleinwort issued bonus letters setting out the award to each employee from the guaranteed bonus pool. The letters contained a MAC (material adverse change) clause entitling the bank to review the bonus allocation if there was additional material deterioration in its financial position. Commerzbank completed its acquisition of Dresdner in January 2009, delayed paying the bonuses, and then reduced them either by 90 per cent, or to nothing for employees with separate guaranteed bonuses. Over 100 employees are now claiming the unpaid portion of their bonuses from both Dresdner and Commerzbank.

Bonus claims
Employees’ only entitlement under a discretionary bonus scheme is to be considered for a bonus, and any bonus is allocated entirely at the employer’s discretion. In this case the employees are arguing their situation is different because the promise of a guaranteed minimum bonus pool was contractually binding. They say the employer was not entitled to introduce the MAC clause because it was contrary to the commitment to pay out the €400m bonus pool and they are entitled to the amounts stated in the bonus letters.

Defence
Commerzbank argues the minimum bonus pool of €400m was a ‘statement of intention’ and not a binding commitment to individuals because it did not have any of the four fundamental requirements of a contract: offer, acceptance, consideration and intention to create legal relations. They say the informal announcement of the guaranteed bonus pool did not alter the terms of employment as set out in the employee handbook, which stated that bonuses were discretionary.

Implications
If the employees were relying solely on the guaranteed bonus pool being announced, their claims would be problematic because the bank stressed individual bonuses were not guaranteed. But the individual bonus letters, showing the share of the bonus pool due to them, strengthens their claims, albeit subject to the MAC. If the court decides the promise to pay out the full €400m bonus pool was contractually binding, Dresdner could not qualify it by introducing the MAC clause, and the full bonuses allocated in the letters will be payable. But if the court finds the guaranteed pool was not contractual, so the bank was entitled to introduce the MAC clause, the court will have to resolve whether there was an additional material deterioration in Dresdner’s financial position to trigger it, justifying a bonus reduction.


Adrian Crawford is an employment partner at Kingsley Napley LLP