Expect a wave of City bankers suing for bonuses
AT FIRST glance the news that a group of City workers is suing a bank for refusing to pay out guaranteed bonuses seems to have few wider implications for the Square Mile’s financial institutions.
According to a claim filed yesterday, 72 former Dresdner Kleinwort employees are seeking €33m (£29m) they say they were promised as part of a £400m “retention” pool before the bank was sold by owner Allianz to German rival Commerzbank.
While a judgement on the case is not expected until the New Year, legal experts say the claim is simple enough. The group claims Dresdner offered guaranteed bonuses to its employees to retain their services and then reneged on that promise when it came time to pay up. Commerzbank disputes the claim.
Most of the previous interest in bonus claims has been around the issue of discretion and how employers have chosen to distribute the payouts. Banks are generally advised by their lawyers to pay up in such cases to avoid negative publicity. What is interesting in this case is that Commerzbank has chosen to stand up and fight. One of the main public criticisms of the City in the past year has centred on guaranteed bonuses. Perhaps some banks will be tempted to test whether the courts’ will echo public opinion and decide it is time to stamp on guaranteed payouts.
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The case comes at a difficult time for the Square Mile given public animosity towards bankers and their bonuses – which many blame for causing the recession. It also follows stories such as that of the $100m (£60m) Citigroup trader Andrew Hall.
He earned the cash by making accurate predictions about the oil market and has rightly insisted his contract is honoured. Bankers, like anyone else whose contract is not honoured, are entitled to sue for their money if there is a clear breach of promise.
Politicians and anyone else who thinks guaranteed bonuses can just be swept away should remember this legal entitlement. It is possible to draw a line under such schemes and say “no more”. But bonuses that have already been promised must be honoured or more legal actions are sure to follow in the coming months.
Indeed, a quick call around employment lawyers suggests a host of similar claims could soon be filed against some of the major banks, including another class action case from former Dresdner Kleinwort bankers seeking £20m.
The only other alternative is to persuade bankers to rewrite their contracts to remove the guaranteed element, but this may simply allow them to negotiate even higher discretionary compensation in future.
In the meantime, it seems the Dresdner case could be the tip of an iceberg of legal challenges.