Bank Bound by Euros 400 Million Bonus Promise
Posted: 26th April 2013
Bank employees who were promised bonuses totalling Euros 400 million a month before Lehman Brothers collapsed have triumphed in their marathon fight to hold their employers to their word. Despite Euros 5.6 billion in losses posted by the bank in 2008, the Court of Appeal ruled that a binding assurance had been given that the bonus pool would be unaffected.
The claimants were 104 employees of Dresdner Kleinwort Investment Bank (DKIB), part of Dresdner Bank AG (DBAG), which was then owned by German insurance company, Allianz SE. In August 2008 it was announced that Allianz was to sell DBAG to Commerzbank AG.
Prior to that sale, which was completed in January 2009, there were concerns that employees of DKIB, which had 1,300 staff in London, would defect to other banks. In order to stem the tide of departures, DKIB’s chief executive announced on August 18 2008 that a guaranteed minimum bonus pool of Euros 400 million had been created for 2008. In what was described as a ‘Town Hall’ meeting, the announcement was made on DKIB’s intranet and broadcast onto large office screens worldwide.
The following month, Lehman Brothers collapsed and Commerzbank subsequently announced enormous losses in 2008 and required more than Euros 18 billion of support from the German government’s stabilisation fund. Nevertheless, affected employees were ‘continually told’ that the bonus pool remained in place.
However, following an extraordinary general meeting of the board of DGAB, a decision was taken in February 2009 to reduce discretionary bonuses by 90% and that those who received a guaranteed bonus would receive no discretionary bonus at all. The decision was greeted with shock by affected employees who viewed it as a ‘volte face’.
At first instance, the High Court found in favour of the employees on the basis that, at the August 18 2008 meeting, a binding promise had been made that the bonus pool was guaranteed. On appeal, Commerzbank and Dresdner Kleinwort Limited pointed to the broad terms of staff employments contacts which stated that bonus awards were at the employer’s ‘absolute discretion’ and which conferred on the bank the right to vary conditions of employment as it saw fit.
However, in dismissing the appeal, the court concluded that the bank could not ‘row back’ from the assurance given. The court rejected arguments that the words used by the chief executive were too uncertain to create a contractually binding obligation. There had been a clear intention to enter into legal relations and the withdrawal of the bonus pool constituted a breach of the duty of trust and confidence that the bank owed to its employees.