It didn’t meet with the same critical acclaim last week that the film of  nearly the same name – The King’s Speech – did a few months ago. No one seemed very impressed by it, little detail was provided and what we have been promised has been mooted already.  The business lobby were underwhelmed by the lack of specifics. The Government’s public discomfort continued as they managed to please no one. Business didn’t like the lack of detail and everyone else seemed underwhelmed. Ed Miliband had a good day, saying,

“No change, no hope – that is the real message of this Queen’s Speech.“

 and

“In two years, you have gone from David Cameron to David Brent. That’s the reality“

Rather good, but isn’t it a rehash of Vince Cable’s memorable description of Gordon Brown as Mr Bean a few years back?

David Brent being, of course, the line manager from hell.  The sort of person who would give lawyers endless work if he were conducting protected conversations, or trying to conciliate disputes.

 It’s not surprising; the same old tired claims about needing to reform employment law to stimulate the economy.  So, we’ll get the Enterprise and Regulatory Reform bill, which will require all Claimants to lodge their claims with ACAS and consider early conciliation.  The Bill will also streamline employment tribunal procedures;

“Legislation will be introduced to reduce burdens on business by repealing unnecessary legislation.”

Expect the measures that have been trailed and consulted on already to be in it: ET issue fees, protected conversations, maybe even abolishing unfair dismissal claims for small businesses.  The Beecroft report is said to be back in favour. Yawn.

The new Bill will also ring fence the retail banking functions of investment banks to protect us from the worst excesses of so-called casino capitalism. And, on a day when Commerzbank lost its case against 104 of its employees, the government will legislate to restrict bankers’ bonuses.

It’s not all about restricting or removing rights though. A Children and Families Bill will extend flexible working for parents. As a parent myself I welcome anything that makes life easier for people trying to balance work and home life, but if you want to find an area of employment rights that causes employers, especially smaller businesses, a headache on a daily basis it is flexible working, not unfair dismissal or discrimination claims. Even so, it’s to be welcomed.

 The Commerzbank decision was an interesting one. I have not seen the Judgment yet but it seems that Mr Justice Owen made the right (but nonetheless still brave) decision to hold that Commerzbank must honour its contractual obligations to those employees to whom its predecessor Dresdner Kleinwort had promised bonuses. The Bank was not able to rely on the downturn in the economy and the worst results in its history to justify a “material adverse change” to allow them to vary those contracts. The bonuses due ranged from £12,000 to £2mn. In the end it seems to have been decided on straightforward contract law principles and fact rather than novel legal principles.  Commerzbank were not able to persuade the Judge that the bonuses were discretionary. The Guardian reported a Commerzbank spokesman as saying;

“The main argument revolves around whether the announcement on 18 August amounted to a legally binding agreement. It is the bank’s submission that there is every prospect that the court of appeal would come to a different view on this matter”

So, it’s not over yet. Will there be “copycat litigation” ?  Probably, but this was a dispute which had its origins in the 2008 financial crisis and the landscape is different now, due to the FSA’s Financial Remuneration Code which restricts the size of the largest bonus payments. Undoubtedly though, more scrutiny will be put on what is said by line managers when the “B” word comes up.

No related posts.

The Queen’s Speech originally appeared on Jobsworth by Michael Scutt on 15/05/2012.

I’ve been maintaining radio silence for too long – sorry about that but the day job got in the way – and thought it was about time I put up another post. Part of the problem is that there has been a lot of stuff to write about and knowing where to start. However, our darling Chancellor, or should that be Mr Darling, Chancellor – has made my task a little easier today following his Pre-Budget Report, particularly with his tax on bankers’ bonuses.

More learned commentators than me are calling this the most political PBR for a long time and that is the only way to see the imposition of the temporary payroll tax on banks that pay discretionary bonuses in excess of £25,000. The measure will raise £550mn which is a mere drop in the cesspool of debt in which we are currently swimming. It won’t apply to guaranteed bonuses (which are often the most criticised element of remuneration policies) and is presumably relatively easy to avoid by paying larger salaries instead, or paying smaller bonuses quarterly, for example? So, in missing the main target and being easy to avoid is this just another example of “gesture politics”? It looks like it.

The government must have (or ought to have) had two real concerns. One, in implementing a genuinely swingeing tax on bankers’ bonuses it would merely have recycled the money back to the taxpayer, particularly where RBS and Lloyds Group, are concerned. The second concern would be to avoid harming London as a financial centre by making it unattractive to work and trade from there. With this new supertax it seems to me that Mr Darling has addressed both issues – it won’t raise much income and won’t cause much pain, but does allow the government to say it is “doing something”: gesture politics.

My firm has a lot of experience in advising employees on bonus schemes, discretionary or otherwise. Please call me if you need any further advice on these issues. I can be contacted on 0207 464 8433 or at michaelscutt@dalelangley.co.uk

Related posts:

1. Bonus Hysteria vs Expenses Sleaze
2. Bonus – what bonus?
3. Bonus Rage and Clawbacks

Bonus Supertax: Nothing more than a gesture? originally appeared on Jobsworth by Michael Scutt on 10/12/2009.

The FT is reporting today that the FSA has finally produced its remuneration code on how bankers should be paid.  I have only seen the headlines and brief summary of the proposals, but it seems that the FSA has shied away from being too prescriptive for fear of driving bankers abroad to less tightly regulated markets.  Expect a deluge of criticism to fall on top of the FSA, whose days are numbered if the Tories return to power at the next election.

The draft code stipulated that two-thirds of each bonus should be deferred and that individuals should be rewarded on the basis of the firm overall rather than just the individual or the business unit.  Apparently that isn’ t in the code to be published today. I posted last week on bonuses and clawbacks – click here to read it.

Undoubtedly the FSA will be criticised for not taking a more rigorous line, yet it is in a situation where it is damned if it does and damned if it doesn’t.  If they had produced a very stringent code the institutions would accuse the FSA of destroying London’s competitiveness as an international financial centre.  Other international regulators are not taking a hard line so why should the FSA?  In my view it would be a bad move to have a government body dictating pay – like the failed prices and incomes policies of the 1970s – and ask yourself this: if the state starts dictating what bankers can be paid, who will be next up for regulation?

Related posts:

1. Bankers and Age Discrimination

FSA Remuneration Code for Bankers originally appeared on Jobsworth by Michael Scutt on 12/08/2009.

Unusually for an August the topic of bonuses is back in the news pages.  This isn’t surprising given that the recession has been firmly blamed on reckless bankers supposedly taking unnecessary risks to generate huge returns that almost led the banking system to collapse last autumn.  Both Barclays and HSBC have announced huge profits for the last six months.  In Barclays case it was £3bn up 8% on the equivalent period last year, and the comparable figure for HSBC was £2.8bn.  Both banks also revealed that they were making massive provision for bad debts.  Bob Diamond, the head of Barclays Capital (BarCap) was on the front page of The Independent on Tuesday, where it was reported that he had received a remuneration package in excess of $50mn at the height of the boom.  The Independent also reported that the “average net income generated per member of staff” at BarCap had increased from £134,000 to £193,000 per member of staff in the last six months.   The FT also reports today that a US hedge fund group called Och-Ziff, based in the US made a loss of $88.3mn because of a 74% increase in bonuses paid to its top traders.  At the Dale Langley & Co website we recently posted on the steps the FSA are taking to try and restrict remuneration packages – click here to visit.  The government, the FSA and the public are all determined to stick the boot in.

Much of the anger generated over this issue has been stoked by the fact that the taxpayer bailed out the banking system to prevent its collapse. In the case of Barclays and HSBC, of course, they did not directly receive state funds but are judged to have been indirect beneficiaries of the taxpayers’ largesse.  If this wasn’t August we would, presumably be seeing the usual collection of hippies, anarchists and eco-warriors calling for bankers to be strung up from the nearest lamp-post (where are they - visiting their holiday squats in Tuscany?)  The central issue is how do you balance the need for restraint with incentivising employees to produce the goods?   Some much needed perspective on the whole issue was provided by Sean O’Grady writing in today’s Independent (click here).   He calls for “sensible, intelligent rules” to govern remuneration packages and deplores the hypocrisy that sees people calling for bankers to hand back their bonuses:  “if you or I were offered a £25mn bonus, we wouldn’t hand it back.  Nor would we say no to the taxpayer paying for a second home, as our MPs did”.  Good performance should be rewarded appropriately.

This of course is the nub of the matter as far as employees (and employment lawyers) are concerned.  Over the years I have seen many people who are unhappy with the annual bonus they have been awarded and I’ve written before on the difficult legal issues that arise when it comes to challenging a bonus (click here).  In recent months with all the redundancies occurring, perhaps not surprisingly, it has become less and less common for employers to make any sort of payment in respect of bonus. When negotiating a contract of employment it is always worth trying to include provision for payment, or pro-rata payment, of the bonus that would have been received had the employee remained in employment at the payment date.

Repayment and clawback provisions in new contracts of employment are also becoming increasingly common, especially amongst those banks that have received state funds.  They will usually require that if performance (whether individual or corporate) does not match up to expectations then bonuses paid (including guaranteed bonuses) can be clawed back.  The period of time covered by the clawback can be quite lengthy, perhaps two – three years, meaning that the recipient employee can be left in some uncertainty about how secure the guarantee is. This is an issue that needs to be dealt with at the stage of negotiating the terms of the contract upon joining the business: it can sometimes be renegotiated to the benefit of the employee.   Just recently I have been instructed on a number of contract negotiations by employees who have secured offers of employment – evidence of “green shoots” perhaps?   - and some of the sting of the clawback was removed.

Related posts:

1. Bonus – what bonus?
2. Bonus Supertax: Nothing more than a gesture?
3. Bonus Hysteria vs Expenses Sleaze

Bonus Rage and Clawbacks originally appeared on Jobsworth by Michael Scutt on 05/08/2009.

The recent indignity suffered by Home Secretary Jacqui Smith over her husband’s viewing of two “adult” films, which she then submitted as part of her parliamentary expenses claim got me thinking again about the slightly older furore over Sir Fred Goodwin and his humungus pension, and the ongoing hysteria over bankers’ bonuses.  I posted a couple of weeks ago on why I thought it unlikely that Harriet Harman’s threat to take government action to recover Sir Fred’s pension would be successful.  In the meantime Congress in the USA has got itself worked up into  a  lather over bankers’ bonuses and is considering a 90% rate of tax on all executives (from those institutions receiving state bail outs, particularly AIG) receiving compensation packages in excess of $250,000. 

When I posted on the subject originally, I said I thought that the politicians were merely trying to deflect attention from their own  inability to actually take meaningful action to mitigate the effects of the recession.  Nothing that has happened since dissuades me from that view.  Indeed reports in the newpapers suggest that President Obama has been coming under some pressure to do something and there are signs that his honeymoon period may be drawing to an end.  A report in the Financial Times on the 27th last was headline “America’s liberal lay into Obama” and he was accused ”of taking dictation from the same financiers who have brought the economy to the brink of depression”.  Some of the (American) people I follow on Twitter are also incensed by his actions (ok, that’s not representative I know but the mood of optimism that greeted his inauguration seems to have withered).  America’s liberals! Heaven help the man!

Politics is never an easy world and politicians will always be criticised whatever they do.  What irks me in with these two particular issues though is how politicians were calling, effectively, for the rule of law to be pushed aside so that valid contractual relationships between employer and employee could be set aside to satisfy the public call for bankers’ blood (and make the politicians look like they were doing something) when at the same time politicians dissatisfied with their incomes are loading their expense claims up onto the taxpayer  bcause they feel their salaries don’t compensate the sufficiently.  Jacqui Smith gets a salary of £141,000.  Her husband, who acts as her parliamentary aide, gets a salary of £40,000 (if the newspapers are to be believed).  She lives in her sister’s house during the week (and that has been the subject of criticism already)  and claims an allowance for that.  I have no issue with what her husband chooses to watch on TV (although I do wonder how stupid he must have been to submit the cost as an expense).  Jacqui Smith is not alone in having her expenses questioned – and no doubt we will be hearing a lot more similar stories in future  –  but I do have an issue with the hypocrisy of politicians (as a class) who criticise bankers for greed when their own actions don’t pass scrutiny. 

I’m not surprised; it was ever thus but let’s just bear it in mind next time Harriet Harman, Gordon Brown, Alistair Darling et al start singling out sections of the working population for special treatment.

Related posts:

1. Bonus – what bonus?
2. Bonus Rage and Clawbacks
3. Bonus Supertax: Nothing more than a gesture?

Bonus Hysteria vs Expenses Sleaze originally appeared on Jobsworth by Michael Scutt on 31/03/2009.

I normally expect to get a lot of enquiries about low or non-payment of bonuses around this time of year.  However, it is not normal for the subject of bankers’ bonuses to be front page news or for all three party leaders to jump on the bandwagon and criticise the level of bonus payments.  Of course, we’re not living in normal times at the moment and bankers are going to be fair game for the media and politicians.

What is noticeable about the current debate is the lack of clarity.  Are we talking about all bonuses (such as the fairly small sum that a cashier on a frontdesk in Barclays would expect to receive – cf: John Varley CEO of Barclays on BBC News last night) or the stonking seven or eight figure sums going to the Masters of the Universe?    What about the high five or low six figure sums going to those in between?   Also, are we talking about discretionary or guaranteed bonuses?  Or commisssion payments?  As usual the media seems to let us down.

Here is my take on the situation.  If you’re working for an Investment Bank and sitting at your PC wondering if you’ll get a bonus (or smarting over having been told you won’t), these are the issues. 

1.    If the bonus you were expecting was wholly discretionary and you’ve got a low or nil bonus it is going to be difficult (but not necessarily impossible) to successfully challenge the award made to you.  The precise terms of the bonus scheme will need to be looked at.  Do you have to be in work at the date it is paid (have you been made redundant conveniently early so that you’re not around when the payment is made)?  Is there a payment in lieu of notice clause in your contract?

2.  Is it a commission payment?  In other words, have you a contractual entitlement to be paid, say 10% of the value of the work you bill?  If the employer doesn’t pay this they will need to have a pretty good reason because, provided you have met the conditions, you should be entitled.  In reality this sort of scheme isn’t seen very often in the City and is not the target of the jibes made by all and sundry in the media. 

3.  Have you got a guaranteed bonus?  These are seen most commonly when an employee joins a Bank, perhaps to compensate them for losing stock entitlements at their last job.  Usually the schemes will require the employee to be in employment as at the payment date and not to be under notice or in the midst of disciplinary proceedings.   The sums guaranteed can be substantial and it is these types of payment that will be giving the banks the biggest headaches.  The employee will be entitled to receive the payment and I  foresee much litigation occurring if payment isn’t made, especially if the employee has performed well.  In cases where someone expecting a guaranteed bonus hasn’t performed well, or has lost their employer large sums of money, they may well find themselves facing a counter-claim for breach of contract for not performing. 

My firm has a lot of experience in acting for banking executives in relation to all these issues.  If you are in doubt about your situation do take legal advice quickly.  You can reach me on 0207 464 8433 or at michaelscutt@dalelangley.co.uk

Related posts:

1. Bonus Rage and Clawbacks
2. Bonus Supertax: Nothing more than a gesture?
3. Bonus Hysteria vs Expenses Sleaze

Bonus – what bonus? originally appeared on Jobsworth by Michael Scutt on 10/02/2009.

In normal times (and heaven knows we are not in them at the moment), people only really get interested in bonuses come January and February each year.  But because of the extraordinary events of the last week or so (I’m thinking particularly of the bail-outs of some of our biggest banks) there has been speculation over what it will mean for next year’s bonus round.  The speculation has been fuelled by comments from the Chancellor of the Exchequer that large bonus payments will not be tolerated at those banks that have been part-nationalised.  The wider media, always in search of an easy scapegoat, has leapt at the chance to have a go on the issue. In turn that has led some lawyers to discuss whether bonuses can be regulated or reduced.

Most people in the financial services sector have an entitlement to be considered for a discretionary bonus each year.  In some cases (such as when an employee has just joined a new company) the bonus may be guaranteed, but in most cases not.  The usual scenario of such schemes is that the employee has no contractual right to receive anything, although there has been some case law over the years on this issue.  

Matters reached a head on this issue in 2006 in the case of Commerzbank v Keen.  That case was about the level of bonus paid to an employee and it was held, by the Court of Appeal, that the burden of proof on the employee in these types of cases was very high because the employee would have to show that the employer’s decision to pay the level of bonus actually awarded was irrational or perverse.  That is a very high hurdle to overcome of course and, in the current climate where everyone in government from the Prime Minister and  Chancellor down is calling for bonus restraint, it is unlikely that a Judge in the High Court would have much sympathy with an employee seeking a much increased bonus, especially if the Bank in question was one of the ones propped up by the tax-payer.

This may well all be academic because most employees are probably just glad to be in work at the moment and won’t be anxious to bring trouble upon their heads by arguing about their annual bonus.  If, as expected, the economy does go into recession, the levels of bonus will be lower in any event, so the prospect of regulation, by the FSA or anyone else, will recede.  Indeed, the FSA through its new Chairman, Adair Turner, has ruled this out. I also can’t see the government legislating to restrict bonuses as this would really smack of the bad old corporatist days of the 1970s.  Nationalisation might be back but is a return to the prices and incomes policies of thirty years ago realistic? I don’t think so.  

This aticle will appear in the Docklands and Peninsula newspaper week commencing 20th October.

Related posts:

1. What’s that worst that could happen if your insurance lapses?

What will happen to bonuses? originally appeared on Jobsworth by Michael Scutt on 16/10/2008.