guardian.co.uk,
Simon Goodley, Wednesday 21 December 2011
 |
| Bob Diamond says pay will fall at Barclays Capital. Photograph: Ben Stansall/AFP/Getty Images |
British
banks will be hit by legal claims in 2012 from bankers who have been denied
bonuses, a City employment lawyer has warned.
The
prediction comes as the banks are in the process of deciding how to pay their staff for 2011 – a year in which the sector's share prices have been among the
worst performers in the FTSE 100 – and despite banker bonuses being viewed with
a mixture of horror and astonishment outside the Square Mile.
Paul Quain,
a partner at GQ Employment Law, said: "Although the banks will have a
robust case, there are still likely to be legal claims in the new year because
the concept of having the right to receive a discretionary bonus is so strongly
embedded in the minds of many bank staff.
"There
is huge disconnect between bankers' perception of their rights and the legal
reality. Bankers seem to have an expectation that they are entitled to a bonus
under almost any circumstances, which has been fed by over 20 years of high
bonus rounds."
The legal
test for whether a bank's decision on discretionary bonus awards can be
challenged as a breach of contract is whether it can be seen as irrational,
Quain added, in that no other reasonable bank would have come to the same
decision.
Despite the
actions of many in the industry being viewed as one of the causes of the
financial crisis and subsequent state bailouts of banks, bankers are still
pursuing their employers for what they argue they are owed.
Commerzbank,
forced to accept an €18bn bailout from the German government in exchange for a
25% stake, is fighting a case brought by bankers in its Dresdner Kleinwort division, which is thought to be the biggest bonus dispute to have come out of the financial crisis.
The bankers
claim that Commerzbank, which bought Dresdner Kleinwort, should have honoured
an agreement to provide a €400m bonus pool for 2008. Dresdner Kleinwort
reported a €6.3bn loss for 2008, which Commerzbank believes changed its
commitment to the bankers.
The latest
bonus season comes as Britain's banks have been told by Sir Mervyn King, the
governor of the Bank of England, to restrain bonuses and dividends in order to
build up their financial strength in the face of the eurozone crisis. This
week, the deputy prime minister, Nick Clegg, also issued a blunt warning to Britain's state-controlled banks, telling them they will face tough restrictions if they attempt to introduce "irresponsible payments"during the forthcoming bonus season.
Meanwhile,
Bob Diamond, the chief executive of Barclays, which avoided a state bailout,
has rejected as "completely speculative" reports that his bank is
preparing to pay its investment bankers a total of £5bn, including salary. He
has said that pay at Barclays Capital, the investment banking division, will
fall this year.
City
bonuses are expected to total £4.2bn in 2011, down 38% on the £6.7bn paid out
last year, according to the Centre for Economics and Business Research (CEBR)
thinktank.
The size of
individual bonus payouts will be increased by the wave of job losses that have
hit the City, meaning the bonus pools will be shared by fewer bankers. Up to
27,000 City-type jobs are expected to have been lost over 2011.
However,
while total bonuses of £4.2bn will generate about £2.5bn for the Treasury,
according to the CEBR, this is still some distance from the taxes gathered
during recent boom years.
"This
is a long way down from the £6.8bn collected in the peak of 2007-08, clearly
illustrating how the taxpayer also misses out when the City pays lower
bonuses," the thinktank states.
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