As is being broadly reported this morning, the Commerzbank bonus case will begin in two days’ time.
At stake, is €50m in unpaid bonuses, owed to 104 investment bankers in denominations of anything from €15k to €2m.
The case is described by employment lawyers as, “one of the biggest bonus cases for some time,” and is seen as crucial for future legal judgements relating to bonuses. It’s therefore worth taking note.
Key things to know are as follows.
The bankers concerned have grouped together to sue Commerzbank. In investment banking terms, this is unprecedented. The group action has the effect of both protecting the identity of most of the individuals concerned and of allowing the bankers involved to share the legal costs. The latter helps create a more even playing field: the Independent reports that Commerzbank has been using one of the most expensive barristers in London to defend itself.
If the claimants win the case, lawyers say other bankers may be encouraged to group together and sue their employers too.
Bringing a bonus-related court case against a former employer is sometimes seen as a death knell for a finance career.
Hence, when we published something on how to sue for your bonus a few weeks’ ago, 70% of you said you wouldn’t do so even if you felt your bonus was unfair.
Most media reports on the Commerzbank case focus on two things: a town hall meeting in August 2008 where Stefan Jentzsch announced the creation of a guaranteed minimum €400m bonus pool for payment to middle and front office Dresdner investment banking staff in 2008; letters subsequently sent by Dresdner to individual employees in December announcing provisional bonus allocations from this pool, subject to a material adverse change clause. This clause said the bonuses would be subject to review:
“….in the event that additional material deviations in Dresdner Kleinwort's revenue and earnings, as against the forecast for the months of November and December 2008, are identified during the preparation of the annual financial statements for 2008 i.e. that Dresdner Kleinwort's earnings position does not deteriorate materially in this period…..”
Needless to say, Commerzbank is arguing that this clause exonerates it from paying the promised bonuses. However, as the judge made clear when refusing to dismiss the case (as requested by Commerz) in May, there’s more to the case than this.
Specifically, the judge noted that:
- Jentzsch initially said the €400m bonus pool could even be INCREASED
- Jentzsch’s townhall speech was recorded in a hand-written note. This note referred to a promise that the bonus pool would remain, 'no matter what', but there’s no available recording of the precise words used.
- Between 12th of September 2008 and 30th January 2009, questions and answers were posted on the DKIB intranet by Dresdner’s HR team. This included a question on how the Commerzbank acquisition would affect the bonus pool and the statement that: “The minimum bonus pool for employees of the business division Dresdner Kleinwort … remains in place and will be awarded on a performance basis as previously announced by Stefan Jentzsch …”
- The head of HR sent all employees an email on October 20th saying, “The bonus pool for the Front Office has already been communicated by Stefan Jentzsch in his updates. The bonus pool for Functions will be comparable with last year's, adjusted for headcount movements….”
In fact, Commerzbank paid out only €177m in bonuses, and individuals had the amounts referred to in their December bonus letters reduced 90%.
Jentzsch said there was a bonus pool of €400m. Commerz paid €177m. The claimants are claiming €50m. What happened to the other €173m?
If Commerz wins, it will have been able to successfully argue that the insertion of the ‘material adverse change’ clause into the letters it sent to individual bankers absolved it of honouring what employees had previously assumed were binding promises. Arguably, this will open the door for banks to alter existing contracts by issuing letters clarifying that promised bonuses will only be subject to certain conditions. Also arguably, this is already the case anyway – few banks will issue unconditional guarantees nowadays.
“If Commerzbank loses this case, banks vulnerability to being sued will go a lot wider than it is now,” says Richard Fox, head of employment law at Kingsley Napley. “They already rarely give guarantees and want bonuses to be discretionary, but this could prevent them providing any kind of indicative criteria in future.”