Be careful what you promise – firm ordered to pay staff bonuses

Employers need to be careful what they say to staff during informal meetings, as one firm found to its cost recently.

The firm, which carried out services for a large banking group, was about to be taken over. During an informal meeting with staff broadcast over the internet, it announced that a “guaranteed” minimum bonus pool would be allocated to employees according to their individual performances “in the usual way”.

This was followed up a few months later with a letter to each employee confirming that a discretionary bonus had been provisionally awarded subject to a “material adverse change clause” (MAC clause).

At a meeting the same day, staff were reassured that the MAC clause was unlikely to be invoked.

However, a few months later after the firm had been taken over, the clause was invoked. Staff were told the bonus would be cut by 90%. They decided to take legal action to have the bonus paid.

The High Court held that the announcement during the internet meeting had been in “clear and unequivocal” terms so as to be capable of creating a legally binding obligation. The promise of the bonus had been made with the intention of providing a benefit for the firm by stabilising the workforce at a time of great uncertainty.

The collective nature of the announcement and the fact that it had been communicated in an informal forum where attendance was voluntary did not prevent it from being the “stuff of contractual obligation”.

The court also held that the firm could not rely on the MAC clause because, on the facts and the evidence, its requirements had not been met.

Please contact Sarah Liddiard if you would like more information about the issues raised in this article.