Welcome to the July 2012 edition of the TWM Employment E-Bulletin. You will find details of our latest case updates below.

1. Banker’s Bonuses – Oral Assurances can be Binding.

The High Court recently heard the case of Attrill v Dresdner Kleinwort finding that some ex-employees of the brink were entitled to bonus payments based on an oral assurance as to the size of the bonus pool to be shared.

A verbal ‘guarantee’ as to the size of the bonus pool to be shared amongst the Investment Banking division of Dresdner Kleinwort was given by the CEO at a meeting, which was also streamed on the firm’s intranet. Further to this, a bonus letter was sent to the employees specifying their provisional awards. This letter also included a ‘material adverse change clause’ which allowed the bank to deviate from its provisional award if there was a material reduction in the division’s performance set against the original forecast. Before the bonuses were payable, the division was acquired by Commerzbank and the bonus pool was reduced by about 90% - the ‘material change clause’ was invoked to justify this.

The High Court found that the CEO’s oral assurance had given rise to legal obligations and had been made on authority and with the purpose of ensuring employees did not leave. The use of the term ‘guarantee’ showed an intention to have legal effect. The announcement was in effect an offer; there was no need for explicit acceptance of this offer and the Bank received consideration in the form of a stabilised workforce who continued to carry out their duties. Although not necessary for the court’s finding, the judge did indicate that the ‘material adverse change clause’ as drafted would have amounted to a breach of the implied duty of trust and confidence by the bank, because it was clearly introduced simply as a means of enabling the bank to break the promises it had made to its employees. The judge also indicated that the use of the words ‘if necessary’ within the clause meant the Bank could only invoke it if left with no other option, which it wasn’t.

2. Sickness and Annual Leave – either one or the other?

Can a worker who is sick during their annual leave recoup that leave at a later date? The European Court of Justice (ECJ) has found that they can. Previously, case law provided that annual leave could be recouped when someone was already on sick leave when their holiday time began. It was widely considered that if they fell sick whilst already on annual leave, the employer could use their discretion over whether or not to grant leave days in lieu of those lost to sickness.

However the ECJ found that there is an entitlement to take holiday at a later date, regardless of when the incapacity took place, if it covered some annual leave time. Employers will need to take this into account not only in their annual leave policies, but also in their reporting of short term sickness. Firms wary of potential employee abuse will need to consider implementing robust policies around the monitoring and reporting of sickness. The definition used of ‘unfit to work’ in these instances may well be the source of future case law. However, in the meantime employers may seek to make their own definition of this apparent to all employees by using clear and comprehensive annual leave and sickness policies, in order to ensure a clear understanding across the business and to aim to avoid vexatious claims.

3. A Reduction in Headcount is not required for Redundancy:

The Employment Appeal Tribunal (EAT) has recently decided to go against one of its own previous decisions and find that a dismissal due to the need for a reduction in hours, but not necessarily head count, is still a dismissal by reason of redundancy and therefore the ex-employee is due a redundancy payment.

In Packman v Fauchon the claimant had been employed as a book-keeper. Due to the incorporation of an online accountancy package and also a general downturn in the business, she was no longer required to work the same number of hours. The employee was unwilling to accept the reduced working hours and was dismissed.

The EAT had previously stated, in the case of Aylward v Glamorgan Holiday Home Ltd, that this would not be a redundancy situation as there was no need for fewer employees (only fewer hours). However, in the Packman case, the EAT appears to have taken into account the widespread doubt on the Aylward decision by many Employment lawyers and academics alike. As such, the claimant’s dismissal, which was pursuant to the need for a reduction in the hours worked and not the workforce itself, was a dismissal by way of redundancy. It followed from this that she was entitled to the appropriate statutory redundancy payment.