Bad bonuses a cue to sue?

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City of London employment lawyers warn that disappointment over this year's banking bonuses could trigger a higher than average number of court cases.

"The higher expectations climb, the further they have to fall," cautions Gareth Brahams, a partner in the employment and incentives practice at law firm Lewis Silkin. "HR people in banks, hedge funds and brokers alike will be deluged with complaints," he predicts.

Jane Mann, head of employment law at Fox Williams, says the season for bonus-related cases starts now and lasts until April. "This is the time of the year when banks dismiss a few people to whom they don't want to pay bonuses," she says. "We get people coming to us that have fallen victim to this, and then in January and February we get the people who are disappointed with what they've been awarded."

Disappointment next January and February could be acute: a September study by recruiter Morgan McKinley found 25% of London bankers expected this year's bonuses to be double last year's.

Legs to stand on

Unfortunately, disappointment alone is no grounds for a legal battle. Brahams says employment contracts at investment banks typically specify bonuses as a matter of discretion for employers. They also say that if it takes their fancy, employers need not exercise discretion or pay bonuses at all.

Despite this, courts tend to take a pragmatic approach when banks fail to pay high performing employees their dues. In 2000, for example, Steven Clarke, an equities trader at Nomura, was awarded 1.3m in damages after receiving a bonus of zilch.

So how can you tell if a petite payout is sufficient to stand up in court? Brahams says courts expect banks to exercise discretion both rationally and in good faith: if it blatantly isn't, you may have grounds for complaint.

Solicitor Charles Ferguson is the champion of disgruntled traders, having helped Clark win the battle against Nomura. He is currently representing James Keen, a former proprietary trader at Commerzbank, who is arguing that his former employer owes unpaid bonuses of over 8m.

Distinguishing which paltry bonuses merit pursuit through the courts is down to the facts of each particular case, says Ferguson. "It's not a terribly high hurdle," he reflects, "Sometimes you can infer irrationality simply from the amount that hasn't been paid. If it's been a good year and a trader pulls in between 30m and 40m in profits, he'd expect to get a market rate somewhere between 15% and 25% of this as a bonus."

Look before you leap

Is it worth pursuing an employer in court? At an event at the London Business School last week, Nicola Horlick, founder of Bramdean Asset Management, advised against it. "If you're someone who pursues things through the courts, it doesn't look great on a CV," she said.

Predictably perhaps, solicitors are less quick to dismiss the legal route. Mann says the decision to take a low bonus to court is a 'judgement call:' "You need to factor in how you have been treated and how a court case will play with other employers in the market," she says.

According to Mann at Fox Williams, one way of staying out of court and of asserting your bonus entitlement if it comes to that, is to make a record of verbal promises made during the year. For example, if your boss says your bonus is likely to be X on the back of 20m in profits, Mann says it's a good idea to drop him or her an informal email saying 'Thank you for today's chat. I was really pleased to find that I can expect a payout of X if I perform." Even if your boss doesn't respond, Mann says it's a useful record and can constitute a tacit agreement to pay up.

How to sue: steps one and two

If you do receive a measly bonus and decide to sue, it's worth doing things properly from the start.

Mann says you'll need to protest about the diminutive size of your payout as soon as you receive it: "If you want to challenge, you need to protest immediately. It's no use acquiescing."

Brahams says the first step is to raise matters internally, typically by writing a letter or email. Because anything in this initial complaint will form the basis of a legal claim, he says it's worth taking advice from an employment lawyer even at this early stage.

If the internal grievance procedure comes to nothing, the claim can be started in the employment tribunal or High Court. Don't expect instant redress: Keen has just issued a writ to Commerzbank, but Ferguson says the case may not be heard for another 15 months. Long enough for even the most acute disappointment to dissipate.

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