Newbury and Thatcham: Employers need to think before making promises, says Gardner Leader

Companies should be careful when making statements at group employee meetings as 'promises' and 'guarantees' could be considered contractually binding, says Gardner Leader, Newbury and Thatcham-based solicitors and experts in employment law. 

This advice follows a recent Court decision to pay a group of bankers their bonuses after it ruled that a promise made by the CEO of Dresdner Kleinwort’s investment banking division was legally binding.

In 2008 the CEO promised at a general “town hall” staff meeting that there would be a guaranteed minimum bonus pool of around £340 million to divide up based on performance.

The bonus pool had been approved by the board in an effort to stop key staff leaving as the business was being sold. The terms of the bonus were later set out in writing in December 2008, which added further conditions.

When Dresdner Kleinwort was subsequently taken over by Commerzbank, the bonus pool was reduced by 90%, relying on the “material adverse change” clause included in the letters to the staff in December 2008 and asserting that the staff communications were not contractually binding.

In 2012 the High Court ruled that the intention of the collective staff announcement was to create a legally-binding obligation and so the reduction in the bonus pool was a breach of contract. This decision was then upheld by the Court of Appeal in 2013.

The Court also stated that when any new conditions are introduced into an existing contractual relationship, there would be a strong presumption that it was intended to be legally binding. Therefore, it was down to the employer to make it clear if there was no intention to create a legal obligation.

As a result, the Court ordered for the bonuses to be paid.

Julie Taylor, employment associate at Gardner Leader, explained: "This decision has significant implications for employment contracts and potentially opens the way for promises made by employers during general staff communications to become contractually binding. Employers will need to be very careful in the announcements they make at group employee meetings to ensure that a discussion remains just that."