Dresdner Kleinwort Ltd & Anor v Attrill & Ors

An employer may create a binding contractual entitlement by announcing a guaranteed bonus pool to employees, even though the allocation of individual awards remains discretionary. A sufficiently clear announcement may vary employment contracts through an incorporated unilateral-variation clause. Alternatively, it may constitute an enforceable promise where the objective context demonstrates an intention to create legal relations and the employer dispenses with individual acceptance.

A discretion over individual awards must be exercised within the contractual limits created by the guaranteed pool. An employer also breaches the implied duty of mutual trust and confidence where, without reasonable and proper cause, it introduces a term likely seriously to damage the employment relationship in order to retreat from its promise.

The claimants were 104 employees of Dresdner Kleinwort Investment Bank. Their contracts made individual bonuses discretionary and incorporated a handbook permitting the employer to vary employment terms through specified forms of communication. To retain staff during a proposed sale and severe financial uncertainty, the bank announced a guaranteed minimum bonus pool of €400 million for 2008, while preserving discretion over individual allocations.

After the financial crisis and pressure associated with the acquisition by Commerzbank, the bank inserted a material adverse change clause into individual bonus letters and ultimately reduced discretionary bonuses by 90%. Owen J held that the employees had been wrongfully denied their contractual entitlement. The employers appealed.

The central issues were whether the announcement created a binding contractual obligation, whether introduction of the material adverse change clause breached the implied duty of mutual trust and confidence, and, if lawfully introduced, how that clause should be construed and applied.

1. Appeal dismissed unanimously. Elias LJ, with whom Beatson and Maurice Kay LJJ agreed, held that the guaranteed bonus pool became contractually binding. The announcement was an effective unilateral amendment under clause 1.4 of the incorporated Employee Handbook.

2. Clause 1.4 had to be interpreted objectively and given a sensible, workmanlike construction. Any genuine ambiguity in a power permitting detrimental unilateral changes should be resolved by limiting its scope. Its provisions for individual written communications and group communications by notice board or intranet were disjunctive. A group change communicated through the intranet did not require separate notification by Human Resources. In any event, the August announcement and the October intranet message from the global head of Human Resources together satisfied the clause. The broadcast constituted a sufficient display on the intranet.

3. The guaranteed pool was apt for incorporation into individual employment contracts. Although individual bonuses remained discretionary, the promise fixed a contractual boundary within which that discretion had to be exercised. The term was sufficiently certain because the pool was to be allocated in the usual way. Residual imprecision concerning contingencies did not defeat enforceability.

4. The announcement objectively demonstrated an intention to create legal relations. A promise concerning remuneration made within an existing employment relationship carries a very strong presumption of legal enforceability. The promise came from the chief executive, formed a central staff-retention strategy, guaranteed the pool irrespective of performance, and concerned pay. Relevant contextual evidence was admissible even where employees did not know every detail. The employer bore the burden of establishing an absence of contractual intention.

5. No individual communication of acceptance was required. The employer had impliedly dispensed with notification, and the nature of a collective guaranteed pool was inconsistent with selective acceptance. Continued employment also supplied consideration.

6. Although unnecessary to the result, introduction of the material adverse change clause breached the implied duty of mutual trust and confidence. Objectively, it was likely seriously to damage the employment relationship. The employer failed to establish reasonable and proper cause because the clause was introduced principally to permit retreat from the earlier promise under external pressure concerning public perceptions, rather than because the bank could not meet the obligation. The court therefore declined to determine the historical questions concerning the clause’s construction and application.

1. Court of Appeal (Civil Division): The employers’ appeal was dismissed unanimously. The court upheld Owen J’s conclusion that the guaranteed bonus pool was contractually binding and agreed that introduction of the material adverse change clause breached the implied duty of mutual trust and confidence: [2013] EWCA Civ 394.
2. High Court, Queen’s Bench Division: Following a trial before Owen J, the employees succeeded in their claims for bonuses. No citation for that judgment is stated.
3. Earlier Court of Appeal proceedings: The employees successfully appealed against Simon J’s summary dismissal of claims based on the August announcement: [2011] EWCA Civ 229. The claims then proceeded to trial.
4. High Court: Simon J summarily dismissed the claims insofar as they relied upon the August announcement, but permitted claims based on the subsequent bonus letters to proceed. No citation is stated.