Patience wears thin as banks fight staff cases

The claim by Kerim Derhalli, former head of emerging markets at Lehman Brothers, is a case in point. Derhalli is suing his former employer for more than 10m (€15m) in the High Court in London. Lehman allegedly failed to honour an employment contract arranged by senior fixed-income staff, under which Derhalli was to be rewarded for recovering money invested in Russia. The employment claim is thought to be the largest brought by an individual in the UK courts.

Derhalli's case is only the tip of the iceberg. In the past year court or tribunal cases have included bonus-related disputes involving UBS Warburg and Merrill Lynch and discrimination claims against Schroder Securities, Nomura, WestLB Panmure and Investec Henderson Crosthwaite.

The groundswell of litigation is not good news for cash-strapped investment banks. Lawyers are expensive; so are out-of-court settlements. Siobhan Lewington, a legal recruiter at headhunter Sheffield Haworth, says the larger banks have been beefing up their in-house employment law teams. "By hiring more staff of their own, banks can cut down on legal fees."

Jane Mann, solicitor at the law firm Fox Williams, is representing Derhalli and represented Isabelle Terrillon, who brought a discrimination case against Nomura last year.

Although Terrillon won an out-of- court settlement of 70,000, many lawyers say City of London employers have become more reluctant to make such payouts as they do all they can to cut costs in the downturn. Mann says: "Banks are digging their heels in much more than they used to. Employees are left with two choices: to accept a low offer or to litigate."

Mann says bankers are more prepared than before to risk tarnishing their reputation with a court case. "People who have been made redundant think that they are unlikely to get another job for a year or more anyway. They have less to lose by bringing a claim."

Past successes have also spurred employees to pursue matters in court. Most notable was the bonus-related case in 2000 of Clark v Nomura, in which Stephen Clark, an equities trader, had his bonus withheld after he was dismissed. The judge said Nomura had been "perverse" and "irrational" and awarded Clark damages of 1.35m.

Solicitor Charles Ferguson represented Clark in the Nomura case. He says claims about trading bonuses are among the easiest to prove. "Trading cases deal with hard numbers. If a proprietary trader has made 9m profit, it becomes very hard for a bank to argue that he or she is entitled to nothing at all."

In discrimination cases less encouraging precedents have been set. After high-profile successes such as the Kay Swinburne case, in which a former senior banker at Deutsche Bank was awarded 1m in 2000, two more recent cases have ended in failure for employees.

Last June, Louise Barton, a former media analyst at Investec, lost a case claiming that she had been discriminated against when she was paid half the salary and bonuses received by a male colleague. Similarly, last month Andrea Madarassy, a senior banker in the equity capital markets division of Nomura, lost a claim of unfair dismissal on the grounds of sexual discrimination.

Rachel Lowes, of the law firm Lawrence Graham, was Madarassy's solicitor. She says losing the case sent out a discouraging message to women in investment banking who are thinking of bringing claims of discrimination.

"This will put other women off. These cases are not cheap to pursue and the fact that two high-profile cases have been unsuccessful will make women think twice. It's a shame."

This is not the end of the road for discrimination cases, however. Barton is appealing, with the backing of the Equal Opportunities Commission, and Madarassy is also understood to be contemplating an appeal.

Another case involving Annie McGregor, a former personal assistant to Yugo Ishida, head of European equities at Nomura, is expected to come to court later this year.

Philip Landau, a partner at solicitors Landau Zeffertt Dresden, says the fear of losing a case still spurs many employers to settle unfair dismissal cases out of court.

"If you are dealing with thousands of redundancies and a few individuals bring a successful case, it could open the floodgates," says Landau.

However, even if Derhalli's claim succeeds, it is unlikely to spur a rash of copycat claims. Mann says the allegations are unique. "Our client's claim is that he was given a written contract to incentivise him to recover lost assets on behalf of Lehman Brothers. His case is simply that he was successful and the bank reneged on the deal."

Nevertheless, other bonus-related cases are in the pipeline. Andrew Curran, former head of high-yield trading at Dresdner Kleinwort Wasserstein, is suing the bank in a case that could be heard in the High Court next month.