Seven City brokers, who quit ABN Amro after being poached by a dealing firm, are suing the bank after it witheld parts of their bonuses, according to the Financial Times.
The seven, who were poached by dealer Tullet Prebon, are seeking to have the parts of bonuses earned at ABN Amro in 2004-2006 that would have been paid as company shares, awarded to them. They claim, said the FT, that forcing them to forfeit their deferred compensation rights is an unlawful restraint of trade in that it effectively penalises them for taking a new job.
If successful, the Tullet seven claim would strike a blow against a compensation system prevalent in the City of London known as “good leaver, bad leaver”. Typically employees who leave to work for a rival are classified as “bad leavers” and forfeit entitlements that have yet to be awarded. “Good leavers” would include those who retire after long service and are duly paid full bonus entitlements.
Employment law experts are awaiting the outcome of the case eagerly. Guy Guinan, an employment partner at Halliwells, said: “The task of proving irrationality or perversity in the exercise of the employer’s discretion to award a bonus is daunting. If there is a clearly transparent bonus scheme, the employer will be able to rely upon it and the employee will be bound by its terms.”
Mark Taylor, employment partner at Jones Day said: “There seem to be two fundamental issues here. First have the employees gone to a competing business? This issue is always very fact specific. The second issue boils down to detrmining the purpose of the annual bonus awards. The employees will say they are solely to reward performance and the scheme rules on deferral and forfeiture act as a restraint on their freedom to move jobs.
“The employer will say they are to reward loyal employees who either stay with the institution or only leave to pursue non-competing interests. Where a substantial portion of an annual award is paid in cash the bank will argue that that reflects the reward for recent performance while the stock portion is a legitimate means of rewarding those who stay the longest or leave and do noty seek to compete. That argument feels like a good one.”
Bank staff on bonuses can receive up to 50% of them in company shares which, typically, can only be cashed in after two to three years. City workers were paid £12.6bn in bonuses in the first qurter of 2008, according to the Office for National Statistics.