Bloomberg reported the other day that Judges had tired of hearing claims over bankers’ bonuses and provided a brief summary of recent high profile litigation. Bankers are said to have been turning to the courts and tribunals to challenge bonus decisions as job cuts start to bite. It’s not a particularly helpful article because it doesn’t bring out the distinction between contractual and discretionary bonuses.
A contractual entitlement to a bonus can still be enforced. In other words, if an employer says that an employee will be paid a bonus of £x, the courts will enforce that contract if the employer doesn’t pay. That was what happened in the Commerzbank case back in May when 100 of its bankers won their case to be paid bonuses costing the bank about 50mn Euros . There may be a dispute over what constitute a contract or even if an agreement to pay existed, but that is a different point to saying that Judges won’t find in favour of employees if the facts support the employee. Interestingly, the FT reported yesterday that Commerzbank has been given permission to appeal that ruling so it wil be interesting to see if the Judgment is overturned.
On the other hand, discretionary bonuses are far harder for employees to litigate and always have been. The only contractual entitlement that an employee has in these cases is to be considered for a bonus and for the employer to exercise its discretion reasonably. In 2006 another case involving Commerzbank (Commerzbank v Keen) helxd that an employee has a very heavy burden to discharge to prove that his employer acted irrationally or perversely in the level of bonus set.
Judges are not set aside from the real world and are just as likely to be unsympathetic about bankers receiving large payouts as any other member of the public if it comes to considering whether a discretion was exercised properly or not. But, if a clear contractual obligation on an employer to pay can be shown, then it should be enforced.