GUEST COMMENT: A short recap of the legislation that will impact bonuses in 2010
It can't have escaped people's notice that tough measures are afoot aimed at curbing bankers' bonuses. In addition to the bonus tax, which runs until April 5th, there are two significant pieces of legislation that will come into effect this year. They are:
The Financial Services Bill:
As it stands, the Financial Services Bill will empower the Financial Services Authority (FSA) to void any employment contracts that it believes encourage and reward undue risk-taking. However, the legislation does not go as far as to place a cap on bonuses.
The Bill will apply to new contracts only. This is as a result of concerns that it would be unlawful for the Bill to apply retrospectively to existing contracts, although the FSA could impose a fine on banks which continue to offer excessive bonuses.
Questions have been raised as to whether the attempt to restrict third party contracts in this way is enforceable at law. After all, the proposals will interfere with private contracts entered into between employer and employee which is against the premise of freedom of contract- a basic premise of English law. It is highly likely therefore that any decisions made by the FSA to tear up employment contracts would be subject to challenge.
The FSA's Code of Practice:
In addition to the Bill, the FSA's new code of practice will come into force in January 2010.
Initially, it only applies to 26 UK-based banks and financial institutions.
The Code states that payment of bonuses should be deferred over several years so that if subsequent performance is poor, the bonus will not be paid (a clawback).
The Code also stipulates that bonuses should not be guaranteed for more than a year and senior employees should have their bonuses spread over three years. Whilst the Code will not be binding, the FSA could take measures in extreme cases to fine firms that do not comply with it or force them to hold more capital reserves.
Feel free to contact Philip on pl@lzwlaw.co.uk for a free consultation on this or any other employment law issue.
