More banks are running the risk of legal claims this year than ever before because they are going to be handing out bonuses that are equal to the number zero. The law firm of GQ Employment Law claims that even though banks are within their operating rights not to pay bonuses to City workers. In previous years, banks have made commercial decisions, paying bonuses out to mediocre staffers mostly in an effort to avoid legal problems.
What determines whether a bank’s decision to withhold a bonus is a breach of contract depends on whether the decision was irrational. It also depends on other banks coming to the same decision regarding bonuses.
Lawyers are pointing to the European financial crisis and a mucky economic outlook for reasons why bank employees are finding it more difficult to succeed in claiming whether or not a bonus is too low. They are also finding it more difficult to prove that their employer acted irrationally.
Ronnie Fox, an employment lawyer from Fox solicitors, said that he does not expect many lawsuits regarding bonuses popping up this year.
“Unless a bonus has been promised and there is a breach of that promise, bonuses are discretionary and in order to bring any claim the employee has to prove the bank acted irrationally or perversely,” he said.
“It is hard for someone who is not getting a bonus to bring any sort of claim especially if the underlying business has not performed well,” he said, according to FT.com.
A partner at the GQ Employment Law Firm, Paul Quain, had the following to say:
“This year the banks’ legal case will be more watertight than ever due to market conditions and the fact that even the Bank of England has advised banks to preserve their capital by not paying out bonuses.”
Quain also said that in the current economic climate, bankers will be more reluctant to file lawsuits related to bonuses.
“Banks were scared if they did not pay bonuses they would lose key staff but that attitude is now changing,” he added. “Banks have to be very careful when dividing their bonus pools not to spark discrimination claims. They have to have a clear rationale as to why each team member got their level of bonus. If the split even looks like it is based on gender or age, for example, the bank could have to explain its rationale in front of an employment tribunal in a dispute.”
A partner from Winckworth Sherwood, Jo Keddie, said that she has discovered a trend in 2011 involving financial institutions that are getting rid of their senior employees in the months of November and December. By removing the senior employees now, they become ineligible for bonuses that are usually paid out in the spring.
“We have seen a number of senior and middle managers let go in the last three months and I predict we will see more in January and February before bonuses are due,” she said.