In Anar and others v Dresdner Kleinwort Benson and another, the High Court recently considered whether employees should be allowed to bring a breach of contract claim where their employer had reduced the amount of their annual discretionary bonuses by 90%.
Bonuses were usually declared at the end of the calendar year and paid in the January of the following year. In 2008, as employees were concerned and demoralised by the uncertainty in the financial world, the employer took the unusual step of making a general announcement as early as May that there would be a guaranteed minimum pool amounting to a substantial sum available for staff bonuses. On 19 December, the claimants were sent individual letters informing them that they had each been made a provisional award of a certain figure as a discretionary bonus, subject to a review of revenue and earnings in the months of November and December. In February 2009, they were each awarded only 10% of the figure mentioned in the 19 December letter.
The employer argued that the claimants did not even have the basis of a claim for breach of contract.
The High Court disagreed and allowed the claims to proceed, though it is not yet certain whether they will succeed.
Points to Note –
- The High Court was quite clear that, in these circumstances, the general announcement in May could not form the basis of a claim as it did not specify which employee was to get what amount of the 'pool'.
- The claimants were allowed to proceed with their claims because the High Court agreed that the terms of the individual letters sent on 19 December were clear as to the amount each was provisionally entitled to, but imprecise as to what conditions were attached. It was not clear whether those conditions had been fulfilled anyway.
- The High Court noted that any contract terms relating to discretionary bonuses are to be interpreted so as not to allow employers to be perverse or irrational in the exercise of their discretion.
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