Employment law: Bankers ready for legal action to protect big bonuses

Employment law: Bankers ready for legal action to protect big bonuses

A leading City employment lawyer has warned that banks will be hit by a series of legal claims if they press ahead with plans to limit or even deny some staff their annual bonus.

The claim comes as British banks take stock of 2011 and start the process of deciding the levels of bonus payments to be made in 2012.

It has been a poor year for the share prices of many of the country’s biggest banks, and this despite all of them announcing healthy profits.

Much of the uncertainty reflects the performance of the economy as a whole, but there is also widespread anger and hostility towards bankers for their perceived role in bringing about the financial crisis. This prompted the Government to recently announce a range of reform measures to prevent a similar crisis occurring again in future.

“Although banks will have a robust case (to deny or limit bonuses) there are still likely to be legal claims,” said Paul Quain, a partner at GQ Employment Law. “The concept of having the right to a discretionary bonus is strongly embedded in the minds of many bank staff.”

In such a case the legal test that would be applied is whether the bank’s decision on the award of a bonus is seen as irrational, that is that no other reasonable bank would have reached the same decision. If this were accepted by a court then the claimant may be able to prove a breach of contract.

The biggest case of its kind is believed to be that against Commerzbank in Germany. Bankers working for subsidiary Dresdner Kleinwort are suing Commerzbank for a €400m bonus pool for 2008 which they were promised when they were bought by Commerzbank.

Instead Commerzbank posted a €6.3bn loss for the year and were forced to accept an €18bn bailout from the German Government. The bank claims that this unprecedented loss changed its obligation to pay bonuses for that year.

The bonus calculations come amid intense pressure from politicians for bankers to act with restraint. Deputy Prime Minister Nick Clegg recently issued a blunt warning to banks saying that they will face tough restrictions if they introduce irresponsible payments during the forthcoming bonus season.

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