Laughing all the way to the bank: Dresdner workers win €52m landmark case over unpaid bonuses
10 May 2012
10 May 2012
Germany's second-biggest bank is facing a €52 million payout to a group of City bankers who won a landmark legal dispute over unpaid bonuses yesterday. A High Court judge ruled that 104 former bankers in Dresdner Kleinwort's London investment banking division were wrongly denied payments of up to €1.6 million (£1.3 million) each three years ago.
Commerzbank, the partly state-owned German bank that took over had been right to withhold the payments because of the bank's crippled financial position at the time. It plans to appeal the decision.
Lawyers hailed the ruling by Mr Justice Owen as a victory for workers in all industries, as it will mean that employers are bound to keep their promises about pay even if their financial position worsens.
Samantha Mangwana, an employment lawyer at Russell Jones and Walker, said: " The bank tried to capitalise on the popular revolt against bankers' bonuses to ride this out - but the bank broke its promise[to the staff], and a contract is a contract."
The case, which has been before the High Court for more than three years, centred on a decision by Commerzbank in early 2009 to reduce the bonuses that had been allocated to the bankers by 90 per cent.
The bankers, all of whom have since left Dresdner, argued that this was in breach of a promise made by Dr Stefan Jentzsch, Dresdner's former chief executive, at a meeting in August 2008. The bankers were told that Dresdner had set aside a €400 million guaranteed bonus pot to persuade them not to leave the struggling business. This assurance - given with the knowledge of the Financial Services Authority - helped to stem a wave of staff defections, the court heard.
In December 2008, the bankers were told that they were to receive bonuses ranging from €25,000 to €1.87 million. However, two months later, they were informed by Commerzbank, which by then had acquired Dresdner for €5.5 billion, that their bonuses were to legally binding and that a "material adverse change" clause entitled the bank to reduce the payouts if Dresdner's financial position worsened.
But yesterday Mr Justice Owen said: "I am satisfied that the promise made by Dr Jentzsch on August 18 gave rise to a contractual obligation to pay discretionary bonuses from a guaranteed minimum pool of €400 million, depending in the case of each individual upon their performance."
Clive Zietman, a partner at Stewarts Law who represented 83 of the bankers, said: "Employers cannot make serious promises to their employees and then renege on those promises. In this case promises were also made to the FSA. The bank clearly thought it could do as it wished. It was mistaken."
The bankers will have to wait until the outcome of an appeal by Commerzbank for their money. A spokesman for the bank said that it believed the Court of Appeal "would come to a very different view on this matter".
"We are disappointed with the court's decision," he added. "The bank believes that the decision to reduce discretionary bonuses in light of a €6.5 billion of losses at Dresdner Kleinwort for 2008 was responsible and justified."