GUEST COMMENT: What the Commerzbank bonus case means for you
There's been widespread coverage this week of a Court of Appeal decision in the case of the 104 former Dresdner Kleinwort bankers suing Commerzbank over its decision to lower their bonuses by up to 90% after it agreed to buy the bank at the height of the financial crisis in 2008.
The Court of Appeal's decision simply means that the claimants can proceed with all their claims relating to a €400m 'guaranteed minimum bonus pool' announced at a 'town hall meeting' in August 2008.
This is by no means the end of the litigation: in fact we may be nearer the beginning - even though this case has lasted for over a year already.
In many ways it is an exceptional case, not least because the claimants argue that the bonus pool in dispute was in fact a retention pool, not a classic discretionary bonus pool. But nevertheless it raises some novel and important general issues which may have implications for the future.
They include:
1) Material adverse change clauses and the FSA's Remuneration Code
In December 2008, three months after the 'town hall meeting' announcement, Dresdner Kleinwort issued letters to its employees provisionally informing them of the amount of their individual discretionary bonuses for 2008. It subsequently reduced these bonus allocations by up to 90% after being taken over by Commerzbank.
The bank claims that this reduction was valid because the letters included a material adverse change clause. This stated that if there was 'additional material deviations in Dresdner Kleinwort's revenue and earnings' as against forecast earnings for November and December 2008, then the provisional bonus awards could be subject to review.
Under material adverse change clauses, even if a bank provides written information on the size of your bonus, that bonus can be all but wiped out if circumstances change dramatically.
In the past, you would often negotiate for the removal of any material adverse change clauses in your employment contract or bonus plan, or at least try to water them down. However, the principle of bonus adjustment has become enshrined in regulation by the FSA's remuneration code (which the Commerzbank case predates). The code states that in some circumstances, including 'material financial downturn', regulated firms must reduce the value of deferred bonus awards. This will make it harder to negotiate material adverse change clauses.
2) Verbal assurances regarding the size of the bonus pool
Another significant element of the Commerzbank case is its implication for verbal guarantees.
It's fairly common for line managers to tell several members of a desk that they're being allocated a bonus pool of Xm, to be distributed at a later date.
The issue is whether the claimants in the Commerzbank case win their argument that they had enforceable legal rights when the 'town hall meeting' announcement about the 'guaranteed minimum bonus pool' took place. If they do, the implication will be that verbal promises made to groups of staff regarding the overall size of the bonus pool count for something and must be adhered to - even though the individual allocation is to be discretionary.
Watch this space.
