Attrill v Dresdner Kleinwort Ltd – Case Summary

Attrill v Dresdner Kleinwort Ltd

Court of Appeal

Citations: [2013] EWCA Civ 394; [2013] 3 All ER 607; [2013] IRLR 548; [2013] ICR D30; [2013] CLY 953.

Facts

Dresdner was an investment bank, part of a larger group of banking companies. They were due to be taken over by another company. Their board of directors (which included the head of the HR department) arranged a ‘town hall’ meeting with their employees in August. This meeting was also broadcast live on the company intranet. At that meeting, they announced that they had approved of a ‘guaranteed bonus pool’. By doing this, Dresdner hoped to encourage employees not to leave the company during the takeover.

Dresdner’s contracts with its employees gave it the power to unilaterally vary the employment terms and conditions in certain circumstances. Individual variations were valid if they were made by a member of the HR department and notified to the relevant employee in writing. Any change affecting groups of employees had to be announced by a ‘display’ on the company intranet.

In December, Dresdner informed the employees that the company had made provisional awards out of the bonus pool, but this was subject to a ‘material adverse change’ clause (the ‘MAC’ clause). They told the employees that they would probably not use the MAC clause. In January, after the takeover was complete, Dresdner invoked the MAC clause. They told their employees that they were reducing provisional bonuses by 90%.

The employees sued for the full value of the bonuses. They argued that Dresdner was contractually bound by its original bonus announcement because:

  1. The announcement met the conditions of its power to vary employee contracts;
  2. The announcement was a contractual offer;
  3. Dresdner intended to be legally bound by the announcement; and
  4. There was no need for the employees communicate acceptance of the offer.

They also argued that the later introduction of the MAC clause breached the duty of mutual trust and confidence implied by law into employment contracts.

Issue(s)
  1. Did Dresdner’s August announcement place them under a contractual obligation to pay the bonus?
  2. Was the introduction of the MAC clause a breach of the duty of mutual trust and confidence?
Decision

The Court of Appeal held in favour of the employees. The announcement met the conditions of the unilateral variation power. The head of the HR department was a member of the board, so an announcement by them counted as an announcement by HR. Changes affecting a group did not need to be notified in writing: it was enough that Dresdner announced the change on the company intranet. A live broadcast counted as sufficient ‘display’.

However, even if the announcement had not complied with the unilateral variation power, Dresdner would still be bound under a separate contractual obligation. The circumstances strongly indicated that Dresdner intended to be legally bound by the announcement and that it was a contractual offer. Factors indicating this included:

  • The fact that the parties had a pre-existing legal relation which the announcement seemed to modify;
  • The announcement was made by senior staff and its wording implied it had the highest level of approval;
  • The announcement was part of a very important employee-retention strategy;
  • Dresdner described the bonus scheme as ‘guaranteed’;
  • The fact that it related to one of the most fundamental aspect of the parties’ legal relationship – pay.

There was no need for the employees to accept the offer in the announcement. The announcement implicitly waived the need for acceptance. No one hearing it would think that they needed to accept it to benefit from the bonus scheme.

The introduction of the MAC clause was a breach of the implied duty of mutual trust and confidence. It was introduced as a result of pressure from the takeover company, who were concerned about public perception of bonuses, rather than for any legitimate reason relating to the parties’ relationship.

This Case is Authority For…

Where a term is introduced into a pre-existing legal relationship, the burden of proof is on the offeror to show that they did not intend to be legally bound.

An offer may waive the need for a communicated acceptance. The key issue is how a reasonable recipient of the offer would interpret it, and whether they would see the need for communicated acceptance.