Nomura's pruning poor performers pre-bonuses and will hire superior people soon. Is this really allowed?

Last week we heard how Nomura was divesting itself of employees who might be compromising its intention to become a world leading investment bank.

This week, we're hearing this is the case again. Financial News maintains that Nomura is planning a, 'shakeup in Europe.'

The shakeup will allegedly involve letting go of people who aren't 'up to scratch' before Nomura's bonuses are paid at the end of April.

Having got rid of these people, Financial News says Nomura will be doing a bit of upgrading later in the year. Headhunters we spoke to predict this will indeed come to pass.

"They're going to get rid of non-producers and people who won't add much value over this financial year," says one. "We're expecting them to rehire afterwards."

The legality of pre-bonus redundancies

Is it really permissible to dump people prior to bonuses, pay them nothing (except salary), and then hire a few new people later on?

Yes.

As long as banks add the right clauses into a contract, they don't have to pay bonuses if an individual isn't in employment at the date bonuses are paid out.

The legality of upgrading

'Upgrading' staff is a little more difficult.

In theory, a redundancy means a position, not a person is being eliminated. If someone else is hired for a position a month or so after a redundancy, it suggests the position still exists and the redundancy is invalid.

However, there are ways around this. They include:

1) Ever so slightly changing the job title and responsibilities

Headhunters say this is the option favoured by banks. "They simply put a slightly different name on a role," says one.

2) Waiting three months before rehiring

Employees who feel they've been made redundant unfairly might decide to bring an unfair dismissal claim when someone else is hired into their job. However, unfair dismissal claims must be brought within three months of being dismissed. If banks wait longer than three months before hiring someone new, this option will have expired.

3) Compromise agreements

When employees are made redundant, they're often obliged to sign a 'compromise agreement' before they receive their redundancy pay. Anyone signing such an agreement won't be able to complain when someone else is immediately hired into their old job.

Elaine Aarons, a partner at Withers LLP who acts mainly for senior executives, says banks often seem to make people 'redundant' rather than dismiss them for performance reasons, simply because redundancy is an easier process.

"Performance improvement plans are time-consuming and the individual has to be paid whilst they're taking place," she says. "A performance improvement plan could easily extend into the next bonus year, and at the end of it, the individual may still think he/she has an unfair dismissal claim anyway."

Equally, lawyers say most bankers take a view that bringing an unfair dismissal claim isn't worth the trouble - even if they have been let go unfairly. This is because the maximum pay out for unfair dismissal is 68k and legal fees are almost certainly unrecoverable.

Making people redundant prior to bonuses and then hiring some better people very soon after isn't technically permissable, but in reality it happens and employees allow it.

Nomura disputes that this is going on anyway. "Any good organisation reviews the performance of its team regularly. We are no different," a spokesman for the bank says.