This time it started when the
From an employment perspective, the first in line to be affected by negative economic conditions are those closest to the money: the banks. And the outlook for employees in the banking sector is truly grim. It is estimated by some that, excluding those already axed, at least 20,000 City jobs will disappear in the next 12 months.
And they have already started — banks do not waste time when money is being lost. December 2007 and January this year saw investment banks start to offload employees, both senior and junior. Redundancies at investment banks are not pretty or subtle. Organisations devoted to the art of making money do not react well when they start losing it.
So the employment lawyer meets his new client: unceremoniously sacked two weeks before her bonus was due. She has been told she will not get her bonus. She is out of a job and, unlike a couple of years ago, she is not being chased by headhunters. Job prospects look very, very bad. She wants to sue for the lost bonus and for anything else she can get her hands on. She has gone from mistress of the universe to another (very) angry ex-employee in the space of two weeks — and she wants revenge.
What then should the employment lawyer do? Teach those arrogant banks a lesson? Hit them hard and hit them fast?
Before we shred the compromise agreement and start writing the nasty letters, consider a few harsh truths about investment banks and redundancies.
Bad timing — most City banking redundancies conveniently take place just before bonuses are due and, because most employment agreements will have provisions stating that bonuses are not paid where the individual in no longer employed or is under notice of termination of employment, the employee will not receive a bonus.
Bad legals — banks know that the ‘no stay, no pay’ contractual bonus provision referred to above is, for the most part, supported by the courts (see Commerzbank v Keen). So our disgruntled employee can work until 31 January but, if she is sacked before mid-February, when the bonus becomes payable, she will not receive a penny of it for all her hard work during the financial year — and she is out of a job to boot.
She can challenge it of course. There is a slim, if not anorexic, line of authority that an employee whose employment is terminated simply so the employer does not have to pay a bonus might have an action for a breach of the implied duty of trust and confidence and even an implied term of ‘anti-avoidance’ (see Commerzbank and Takacs v Barclays Services Jersey).
But to challenge it she needs to bring legal proceedings and, as well as virtually inhuman levels of resolve, she needs money — plenty of it — at a time when she has just been sacked with no bonus. Not the best time to take on an investment bank, a well-resourced and ruthless opponent with a lot of money.
Bad payouts — with law and money on their side, the banks can call the shots. Compromise agreements will rarely offer generous amounts, whether for compensation for termination of employment or legal costs. To make it worse, banks normally have all the flexibility of a firing squad when it comes to negotiating.
Bad options — imagine you have just been sacked with no bonus, the compromise agreement only just covers your champagne budget for last year and the bank is not flexible; what can you do? You can sue of course — you have been treated shabbily, black-bagged out of the office, humiliated and you are already in financial difficulty. But the
Take a look at the options. First, you might have a lousy payout and no claim for bonus, but you can always bring a claim for unfair dismissal, the
If you really want to ruin your high-flying City career, you can sue for discrimination on the basis of a discriminatory dismissal — banks will love you for that. Better be looking at career loss if you go for that option.
Unfair dismissal is a bad idea. Discrimination is tricky and very speculative. So to your second option: what about a claim for loss of bonus? You were paid £760,000 last year; why not sue for a similar sum for this year? Surely you can’t work incredibly hard for a whole year and, just because you get sacked 14 days before your bonus is due to be paid, still not have much of a claim?
Unfortunately it does not work like this, if you were dismissed before the date the bonus was due to be paid and the contact has a ‘no stay, no pay’ clause, any claim for bonus will be speculative and expensive. You will be relying on implied terms in the High Court, and even if you do win (making history in the process), how much unpaid bonus will you get?
Probably not much. The bank, now having lost its historical case and faced with paying your discretionary bonus, may well say something along the lines of “He got £760,000 last year but this was a terrible year with the US sub-prime (insert legally-vetted 500 words about poor economic conditions, credit crunch etc) so the bonus will either have been nil or very low and this employee was made redundant in 2008 because he was not that good and his figures were down (insert legally-vetted suitable wording about employee never really being up to scratch and include selected extracts from appraisals etc).” So, even though the court has made history and the bank has to pay up, it will exercise its wide discretion and award £50,000 (about as much as much offered in the compromise agreement to begin with).
And yes, the bank can do that. In Commerzbank, the court was quite clear about the scope of a bank’s discretion in awarding discretionary bonuses. It can be reduced to one word: wide, or even very wide. In order to show that the bank did not exercise its discretion lawfully, you have to show that it was exercised irrationally or perversely. In Commerzbank, the Court of Appeal held that because banks have such a wide discretion, it would require an “overwhelming” case that the exercise of discretion by a bank was irrational or perverse and the court would have to hold that no rational bank could award the low bonus awarded.
You would first have to make legal history and then overturn a Court of Appeal decision. So maybe that compromise agreement will not look so bad after all — the market will improve in a year or so, and you do have some savings.
This article is not designed to be a crushingly serious and analytical account of employee claims against banks but reflects my general pessimism about suing them. A wise man once said you should only sue for one of three reasons: economic gain, principles or spite — and if it is either of the last two, prepare to lose money.
Despite all this pessimism, however, there are times when the banks get it very wrong. In these circumstances the employee may well be better off shredding the compromise agreement and considering legal proceedings (and will certainly have more leverage against the firing squad). This tends to happen when the bank, using its dismissal procedure, finds itself on the wrong side of discrimination law.
Some have argued, including in tribunal claims, that there is an overwhelming bias against women at investment banks and that the ‘boys’ club’ environment is both unfriendly to women (particularly those that reach a senior level) and ensures that when the axe falls women go first.
If there is sufficient evidence to support a claim for sex discrimination (or any other discrimination) then, as would be the case with any other employer, the employee will be in a stronger position. As City employees tend to be well remunerated and the ability to mitigate loss is limited in a chronically poor job market, the amount of any claim may be very high. In a healthier economic climate, the employee might move to another bank. In the current climate, however, the employee might be more inclined to litigate.
So although the scales are normally heavily weighted in favour of banks, no matter how ruthlessly they might operate, a genuine discrimination claim will run and, bearing in mind the sums involved, could earn very big bucks.
The employee will certainly be committed — she will be banker non grata, the City career is gone and only very big bucks can compensate for that. And at times like this, employment lawyers can be very dangerous people.
David von Hagen is a partner at Winckworth Sherwood.
EmploymentJune2008
