On Friday (26 April 2013), the Court of Appeal held that Commerzbank AG (the ‘Bank’) is contractually bound to pay bonuses worth approximately €50m to 104 employees of Dresdner Kleinwort Limited (now part of the Bank).
The Court of Appeal judgment can be viewed here.
Summary
In August 2008, a group of employees were told in a Town Hall meeting that they would participate in a guaranteed minimum bonus pool of €400m for the year. However, the employees were informed in February 2009 that they would receive only 10% of the announced bonus awards. The disgruntled employees brought claims for the unpaid balance later that year.
Four years later, the case had reached the Court of Appeal. One of the principal disputed issues was whether the Town Hall announcement in August 2008 had amounted to a contractually binding obligation to make bonus payments to the employees.
It was the Bank’s case that the information given to the employees was binding in honour only. However, the Court of Appeal found that the information given to the employees was sufficiently clear and precise to be enforceable and had been intended to create legally binding obligations.
Also in dispute was whether a clause introduced into the employees’ bonus letters in December 2008, seeking to make payment of the bonus awards conditional upon the Bank’s financial performance, was a breach of the implied term of mutual trust and confidence.
The Bank argued the clause was introduced in response to its deteriorating financial situation following the onset of the global financial crisis. However, the Court of Appeal decided that the real reason was to avoid adverse public comment for paying substantial bonuses at a time when it had received financial support from the German government.
The Court held that this was not a reasonable and proper cause to introduce the clause and that the trust and confidence between the Bank and its employees was damaged as a result of its inclusion in the bonus letters distributed to the employees.
As the Court found for the employees on those two grounds, it did not determine whether the material adverse condition clause was properly construed and applied by the Bank when it decided what bonuses should actually be paid to the employees.
The Bank is reported to be considering its legal obligations: it is likely the Bank will seek leave to appeal to the Supreme Court.
What to take from the decision
- Employers should be extremely careful when making all-employee announcements, especially in connection with remuneration.
- Oral statements can be legally binding: even off-the-cuff comments and informal assurances are capable of giving rise to a binding contractual commitment.
- Promises made to an employee must be met by employers even if the business is on the brink of insolvency.
- References to ‘guaranteed’ bonus pools and assurances about bonus amounts should be avoided where possible.
- Companies may wish to include contractual provisions in bonus scheme documentation excluding ‘verbal promises’.
