Bankers Entitled to Share of EUR400m Bonus Pool

An employer’s announcement to employees of a guaranteed minimum bonus pool of EUR400 million, to be allocated on a discretionary basis according to individual performance, gave rise to a contractual obligation to pay bonuses on that basis.  The verbal announcement was sufficiently clear and had been intended to create legally enforceable obligations.

In Attrill v Dresdner Kleinwort Ltd and Commerzbank AG the claimants were contractually entitled to be considered for an annual discretionary bonus.  Following a decision that the bank’s investment division would be sold, the Board approved a guaranteed minimum bonus pool to encourage employees to stay.  The pool was announced to employees and they were told that it would be allocated according to individual performance.  When the employees were subsequently notified of their provisional bonus awards, they were told that the amount would be reduced if the Bank’s actual revenue was materially less than forecast.  Relying on this provision, the Bank sought to reduce bonus payments by 90%.

The claimants claimed breach of contract, arguing that they were entitled to the amounts originally notified to them.  The High Court upheld their claims.  There was no reason why a general announcement to the whole of the workforce should not give rise to contractual obligations, provided its terms were sufficiently clear and an intention to create legally binding obligations could be inferred.   The terms of the announcement were clear and unequivocal and an intention to create legal obligations could be inferred from the fact that the purpose of the announcement was to deter staff from leaving during a period of business uncertainty and from the fact that the bonus pool and the terms of the announcement had been carefully considered and approved by the Board.

This case demonstrates that employers need to be careful when discussing bonuses and other benefits with employees.  Contractual commitments can arise, even where nothing is put in writing, if discussions are couched in terms which are sufficiently certain and an intention to create legally enforceable obligations can be inferred.  Employers should ensure that they make any conditions for the payment of bonuses absolutely clear and that when drafting bonus documentation they anticipate and provide for any events that might result in a reduced bonus payment.