The Court of Appeal has recently upheld a decision in the case of Attrill and Others -v- Dresdner Kleinwort Limited that the claimants, who were employees of the defendant bank, had been entitled to enforce a promise made by the bank’s former chief executive, to the effect that they would receive a retention bonus for the year 2008.
In August 2008, the bank was under threat of being sold and restructured. Concerns were raised about the possibility that there would be a mass exodus of staff. In order to prevent this, the bank announced the creation of a guaranteed retention bonus pool in the sum of 400 million Euros. The announcement of the bonus pool was made at a meeting of employees and was simultaneously broadcast to all those affected on the bank's intranet. In December 2008, the bank resolved to introduce “adverse change” clauses into the terms of the bonus arrangement, stating that payments would be adjusted if there were material negative variations in the bank's revenue. The bank wrote to its employees saying that it reserved the right to review the payment of bonuses and, if necessary, to reduce it. In February 2009, the board of the bank decided to reduce the bonuses by 90% and, in some cases, not to pay a bonus at all.
The main issue was whether the bank had effectively varied the terms of the employees' contracts by means of the announcement made in August 2008. If so, this would have been a unilateral change in the terms of employment. The staff handbook allowed the bank the unilateral power to vary the terms of the employment contracts, but indicated that such changes had to be communicated in writing and could only be made by a member of the bank's human resources department. The bank also argued that there had been no intention to create legal relations, i.e. no intention to vary the contracts.
The Court of Appeal stated that, where a term was being introduced into a pre-existing contractual relationship, there would be a very strong presumption that it was intended to be legally binding. In this particular case, therefore, the onus was on the bank to prove that there had been no intention to create legal relations when it made a promise to staff in August 2008. It failed to do so.
The Court considered that the promise had been made in accordance with the provisions of the staff handbook and that the bank should be bound by its promise. The Court found that the announcement made in August 2008 amounted to an offer capable of acceptance, but which did not require that acceptance to be communicated in writing. The promise had been relied upon by the staff and the bank should not be able to escape its liability.
Although the circumstances of this case are somewhat unusual, it is not difficult to envisage situations in which an employer might be tempted to promise a bonus to a single employee in similar circumstances, which it might later decide that it does not wish to pay. The case is a warning to employers in such circumstances to ensure that the terms of the bonus are outlined properly from the start. If there are any circumstances in which the bonus might be capable of being withdrawn, these need to be outlined at the time that the offer is made.