Irish financial services facing a legal headache from disgruntled employees

The decision of around 90 employees in AIB's capital markets division to take legal action against the bank over unpaid bonuses may just be the start of a long line of litigation around pay and benefits in Ireland's financial sector.

Staff within AIB's capital markets division have started legal action against the bank after being told that 2008 bonus payments, already deferred for over a year, were set to be deferred indefinitely, according to a report in the Irish Times last week.

This follows a successful move by AIB capital markets staff in foreign units.

A broader issue within Ireland's financial services sector

A number of banks in Ireland both froze pay and bonuses after the government guarantee programme in 2008, and other firms that didn't tap the state coffers also looked to cut back staff costs. The AIB case therefore illustrates a quandary facing financial services firms in Ireland.

As Charles Ferguson, managing director of Ferguson Solicitors - a law firm specialising in trader pay claims - points out, as these contracts are likely to have been put in place prior to the state funds injection, employers are required to pay them unless otherwise agreed with the employee.

"I would expect more of these cases in Ireland in the near future," he says. "The government is putting pressure on the banks to rein in variable pay, which may unwittingly cause them to breach what would have otherwise been an inviolable contract. Unless the company goes bust in these cases, employers are in a contractual straight jacket."

Within AIB's capital markets division, most employees have contracts entitling them to bonuses.

In reality, though, the disgruntlement among financial services employees in Ireland's runs much deeper than AIB's isolated (yet high-profile) case claiming for deferred bonuses.

"We are seeing a significant number of identical class action cases from financial services employees related to changes to terms and conditions of employment," says Peter McInnes, who heads the employment practice at McDowell Purcell Solicitors in Dublin. "Be that bonuses, pay freezes, salary reductions or other employment issues."

IBOA general secretary Larry Broderick said recently that Irish financial services workers' terms and conditions of employment were under "sustained attack".

Domestic firms facing an exodus

But the case also raises another issue - the difficulties banks face in retaining staff who could potentially receive lucrative bonuses elsewhere. AIB already encountered these problems outside of Ireland, according to Department of Finance records, with "headhunting of key personnel" happening even last year.

While all domestic institutions in Ireland are bound by the same pay restrictions, international firms are still able to pay bonuses, should they be inclined to do so.

"The people we speak to coming out of the domestic institutions have largely given up hope of receiving any sort of bonus," says Eoin Blake, director of headhunters Lincoln Search & Selection. "Foreign banks have maintained bonus payments, which makes them more appealing, but candidates are no longer in the driving seat when it comes to pay discussions."