Contractual bonus victory of £1.2 million in High Court

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Contractual bonus victory of £1.2 million in High Court

The case illustrates that, an employee should never agree to a change to his bonus terms unless he is sure the changes are to his benefit.  In the case we successfully won, the ability to fight existed because our client had refused to accept amendments proposed by the Bank.

At first, the bank tried to remove his right to a bonus by changing his contract. Our client refused on our advice. The Bank made him redundant, to avoid paying the bonus.

Result

We recovered a contractual bonus in excess of £1.2 million for the employee Khatri versus Cooperatieve Centrale Raiffeisen-Boerenleenbank. Our client was a banker, who after a successful year, was entitled to a substantial bonus.

How we won the bonus claim

We were instructed by the employee, and:

  • Immediately advised him not to sign the acceptance letter altering the terms of his bonus payment.
  • Attempted settle the bonus dispute with the bank through negotiations and then mediation; and when those negotiations broke down because the Bank feared the repercussions from other employees if they caved in.
  • We took our client’s claim to the High Court in the first instance and then on appeal to the Court of Appeal.

Contractual bonus or discretionary bonus

Our client was a derivatives trader. He joined his employer in 1998. His bonus entitlement at that time was stated to be “entirely at the discretion of the Bank.”

In March 2008 his contract was changed. New terms provided for a

  • “Performance related bonus…payable in the year following the performance year for which you are being awarded.”
  • “The formula used to calculate the bonus due was set out in a table stated to be “applicable to your 2008 bonus.”
  • It was then stated that “the Bank maintains the right to review or remove this formula linked bonus arrangement at any time.”

New contractual terms

In July 2008 the Bank sought to introduce new contract terms. The letter stated that the performance related bonus for 2008 “will cease with immediate effect”. This was to be replaced by a bonus payable “entirely as the discretion of the Bank.”

The letter then stated “I should be grateful if you would sign below to indicate your acceptance of this offer.”

On our advice, our client did not do so, nor was he pressed to do so, continuing to work as before. In October 2008 he expressly stated that he had never agreed to the change and that he remained entitled to the performance related bonus. He was dismissed as redundant on 12 January 2009.

The Bank refused to pay the performance related bonus for 2008.

Negotiations with the Bank

Naturally, we endeavoured to negotiate with the Bank to reach a settlement. We attended mediation, but still the bank would not offer a sensible figure.

Politically, the Bank had decided not to settle this case.  Obviously, the Bank did not communicate its stance in so many ways.  However, it become clear that the without prejudice discussions were going no where.

We then advised our client on the implications of litigation and costs.  We did explain that if our client won he would recover most of his costs.  This was a risk and care was taken to work through the full potential exposure on a worst case scenario so that our client was prepared.

High Court claim

We took the case to the High Court to claim our client’s bonus. As is our practice, we aimed to reduce costs and quickly resolve the case. So we applied for the matter to be dealt with summarily, without the need for a full trial, on the grounds that the bank had no arguable defence to the claim.

In the first instance the judge ruled that the matter would have to go to a full trial. In his view:

  • The Bank could reasonably argue that there was no entitlement to the performance bonus as it was stated that the bonus arrangement could be removed “at any time”
  • In any event it could be argued that our client had accepted the variation to his entitlements by continuing to work without complaint.

We appealed this judgment.

Appeal

Agreeing with our analysis, the Court of Appeal ruled the contract wording gave:

  • Our client a clear entitlement to the performance related bonus for 2008;
  • That the wording stating that his entitlement could be removed “at any time” was ineffective.

The Court of Appeal stated:

  • “If banks decide to reward their employees by means of purely discretionary bonuses then they should say so openly and not seek to dress up such a bonus with the language of entitlement qualified by a slight phrase which does not make it absolutely clear that there is in fact no entitlement at all. If you are to give with one hand and take away with the other, you must make that clear.”

Further findings at the Court of Appeal

  • As the changes to our client’s bonus entitlement had not yet taken effect
  • Simply by acting as he had before did not mean that the bank could argue that he had impliedly accepted new terms.

Our client was awarded his bonus entitlement of £1.2 million. What’s more, because we had offered a tactical settlement at an early stage, he got interest at a very high rate on his bonus plus his legal costs.

Alex Kleanthous is a partner in our employment law team with plenty of experience in resolving issues for employees relating to their termination of employment, especially settlement amounts, bonus payments, shares and when things go wrong, litigation.