Verbal statements can be binding to vary contracts of employment

15 June 2012

Attrill & Ors v Dresdner Kleinwort Ltd [2012] EWHC 1189 QB

Although the facts of this case arose in the financial services sector, it is of interest wherever discretionary bonusor other types of incentive schemes are used.

After a bonus announcement concerning the creation of a guaranteed minimum bonus pool of EUR 400m for employees of Dresdner in August 2008, employees of Dresdner received a letter in December 2008 stating that a bonus had been provisionally awarded at a specified sum, but subject to a material adverse change clause (MAC clause), which was a claw back provision.

In January 2009 Dresdner was sold to Commerzbank  and this fact was used to trigger the MAC clause such that in February 2009 employees received an  e-mail informing them that provisional bonus amounts would be cut by 90% pro rata.

Each of the 104 claimants claimed the unpaid balance of the sum stated in their December 2008 bonus letters ( in the aggregate a sum of EUR 51,855,474); and from Commerzbank, the like sum as damages for inducing breaches of contract.

The vast majority of the employment agreements made express provision for the award of discretionary bonuses and they also contained entire agreement clauses, yet the court found the verbal announcement of a guaranteed minimum bonus was contractually binding, varying the employment contracts without the need for employees individually to accept the change.

The MAC clause contained in letters sent in December 2008 to employees about their discretionary bonuses for 2008 was introduced in breach of the implied terms of the contracts of employment. Also, despite the fact that the Court accepted the change in the financial climate, had Dresdner been entitled to rely on the MAC clause, there was a failure to comply with its terms which invalidated purported reductions in the provisional bonus awards.

To read the full judgment, please click here.