Dresdner Kleinwort Limited and Commerzbank AG –v- Richard Attrill & Ors and Fahmi Anar & Ors

On 26 April 2013 the Court of Appeal dismissed the appeal by Dresdner Kleinwort Limited and Commerzbank against the decision of the High Court, which found that 104 ex-employees of Dresdner Kleinwort Limited were contractually entitled to bonuses worth approximately €50m.

Summary

The Court of Appeal has held that an announcement made by the Bank to a group of employees in a Town Hall meeting to the effect that there would be a guaranteed minimum bonus pool available for distribution amounted to a contractually binding promise. The Court found that the information given to employees had been intended to give rise to a legally binding commitment and was sufficiently certain to be enforceable. In addition, the subsequent introduction by the Bank of a clause seeking to make payment of the bonus awards conditional upon the Bank’s financial performance was held to be a breach of the implied term of mutual trust and confidence.

Practical implications for employers

The Court of Appeal’s decision highlights some important practical considerations for employers to bear in mind in connection with bonus allocation and more widely when making communications to employees.

  • Employers should closely review the wording of any express power to make unilateral changes to terms and conditions of employment contained in employees’ contracts or in an employee handbook. Such wording should be flexible enough to enable the employer to make changes unilaterally, but tight enough to make it clear in what circumstances a variation will be effective.
  • The Court of Appeal in this decision recognised that the purpose of HR having a role in unilateral changes to terms and conditions is because of the real risk that individual managers will make promises to members of their team without proper authority. However, the Court concluded that where a change is effected by communication made to a group of employees openly and in public, “there is not the same risk”. To the extent that an employer would like a particular process to apply to all changes, whether in respect of one individual or to a group, it would  therefore be prudent to expressly set out who can make that change (e.g. a member of HR).
  • The Court’s finding on what constitutes “display” on the intranet is concerning for employers in today’s technological age where employers increasingly use the intranet to stream presentations, Town Hall meetings and/or podcasts. In this case it was found that “display” on the Bank’s intranet for the purpose of making a variation to the contracts of a group of individuals was satisfied by the one-off broadcast of the Town Hall announcement on 18 August 2008.
  • Employers should be cautious about making general statements in an announcement to a class of employees, especially in connection with remuneration. As this decision demonstrates, such an announcement is capable of giving rise to a binding contractual commitment, even where bonus entitlement is expressed as being discretionary and no employee can point to an entitlement to an ascertainable sum.

Background and key issues

For a high-level summary of the facts of the case, please click here.

The principal issues to be determined by the Court of Appeal were as follows:

  • Whether the oral announcement made by Dr. Jentzsch on 18 August 2008 that there would be a guaranteed minimum bonus pool of €400m for 2008 gave rise to a binding contractual commitment to pay bonus awards to the Claimants;
  • Whether the introduction of the MAC Clause in the 19 December 2008 bonus letters constituted a breach of the implied term of mutual trust and confidence; and
  • Whether, if the MAC Clause was lawfully introduced, it was properly construed and applied by the Bank when it decided what bonuses should actually be paid to the Claimants.

Issue one: Contractual status of 18 August announcement

An Employee Handbook, which had been incorporated into the Claimants’ employment contracts, provided in section 1.4 that any variation to the Claimants’ employment contracts could be made as follows:

“The Company reserves the right to vary the terms and conditions described in this handbook and the terms and conditions of your employment generally. Such changes can only be made by a member of the Human Resources Department and must be communicated to you in writing. When the change affects a group of employees, notification may be by display on notice boards or Company Intranet.”

The Court of Appeal found that:

  • Section 1.4 of the Employee Handbook had been complied with such that the announcement constituted a valid unilateral variation of the Claimants’ employment terms. This was despite the fact that the communication of the bonus pool had been made orally and by someone other than a member of HR. The Court of Appeal construed the last two sentences of the wording of section 1.4 as being disjunctive such that a change affecting a group of employees did not need to be communicated in writing and by a member of HR but only needed to be communicated by “display” on notice boards or the Bank’s intranet. The Court further held that the announcement, which was streamed live via the Bank’s intranet, constituted a notification on the Bank’s intranet, notwithstanding that it had been made orally and no record had been kept.
  • The announcement was apt for incorporation into employment contracts even though no individual could point to an entitlement to a specific sum payable out of the minimum pool. Any problems as to certainty were remedied by the finding that the Bank had committed to allocate the pool “in the usual way” and the fundamental principles of the bonus allocation process were “entirely clear”.
  • There was a very strong presumption that the announcement was intended to be legally enforceable. Factors taken into account by the Court included that the promise was made in the context of a pre-existing legal relationship between employer and employee and it was therefore a natural inference that any such promise would take effect in the same way as other contractual terms. Further, the source of the promise was the Bank’s CEO with the implication that the creation of the pool must have been approved by the highest echelons of the Bank. The promise also related to pay, which is the most fundamental obligation in the employment contract.
  • The Bank had dispensed with the need for the Claimants to communicate acceptance of the “offer” because it not have given rise to any disadvantage and no member of the workforce could have expected to benefit from it only if they had positively accepted the offer. If communication of acceptance was required, this would have given rise to the curious consequence that if only a minority of employees had communicated acceptance, the Bank would have been bound to pay out the entirety of the pool to that minority.

Issue two: Introduction of the MAC Clause

The Court of Appeal found that the introduction of the MAC Clause in the 19 December 2008 bonus letters constituted a breach of the implied duty of mutual trust and confidence.

It was the Bank’s case that the MAC Clause had been introduced as a result of genuine concern about the deteriorating financial situation of DKIB at the time and the potential breach of German law if payment of the bonus pool was made without proper regard the best interests of the Bank.

However, the Court of Appeal decided that the MAC Clause was introduced due to pressure from Commerzbank, which was likely to face public criticism for paying substantial bonuses at a time when it had received financial support from the German government. The Court acknowledged that this was understandable given the public perception of bonus payments in the context of the support for Commerzbank provided by the German government, but nonetheless held that this was not a reasonable and proper cause which justified DBAG in introducing the MAC Clause and thereby damaging trust and confidence between the Bank and its employees.

Issue three: Construction of the MAC Clause

Since the Court of Appeal found in favour of the Claimants on the first two issues, it was not necessary for the Court to make a determination on this issue.

For further information please contact Nicola Rabson or Jillian Naylor.