Bonuses – Be Careful What You Say!

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Those that run bonus schemes will be familiar with the need to carefully draft the scheme, particularly where employer discretion is to be a factor in determining pay outs.  The High Court in Attrill v Dresdner Kleinwort and another, however, has highlighted the need not just for careful drafting but also careful conversations.  The High Court found that an oral promise to create a minimum bonus pool of EUR 400 million was binding on an employer, even though it did not explain how individual awards would be allocated.  This bonus pool was announced to staff in a ‘town hall’ meeting thereby ‘trumping’ the terms of the employees’ annual bonus letter which included a material adverse change clause (“MAC clause”).  The MAC clause sought to reserve the right to reduce bonus payments if “additional material deviations” were identified in the bank’s accounts.  The High Court found that the CEO’s town hall announcement amounted to a contractual commitment.  It also held that the introduction of the MAC clause was a breach of the implied term of trust and confidence.

The warning is clear, be careful what verbal commitments are given to employees about their bonus.  Great care will need also to be given if you seek to change provisions of a bonus scheme during its term.

For more information, help or advice please contact Tim Davies on 0191 211 7927 or email [email protected].