Employment Law, Oisín Scollard - Fate of bonus culture a matter for the judiciary

In recent weeks the AIB bonus controversy has attracted significant media coverage. The furore provoked a remarkable intervention by finance minister Brian Lenihan, writing to AIB warning the bank that if its bonus payments were honoured, the state would withdraw financial aid to the bank. The bank had little option to acquiesce in the face of such a forthright ministerial challenge.

Lenihan also brought before the Dáil the Credit Institutions (Stabilisation) Bill 2010, which will fundamentally change how bankers are paid bonuses in the future. Many legal eyebrows have been raised at the sweeping nature of the bill, not least the inclusion of ministerial powers to retrospectively curtail the payment of bonuses in an effort to give legislative effect to the bank's now stated intention not to pay the outstanding bonuses, reportedly worth €40m. It is reasonable to assume that a constitutional challenge is imminent.

Employers use bonuses to entice a potential employee to the company or to incentivise an existing relationship to increase productivity. However, not all bonuses are enforceable. A distinction must be made between contractual bonuses, those which are expressly defined within the employment contract and verbal or discretionary bonuses. A failure to pay defined bonuses is likely to result in a breach-of-contract claim. It is now known that numerous such cases have been initiated by affected parties within AIB. What is at stake in that particular case is whether there is a contractual obligation by the bank to honour the bonuses.

One banker has already secured a High Court judgment to the amount of €161,000 and it is believed that the bank is proceeding to settle this claim. However, there is speculation that the AIB bonuses were not explicitly provided for in at least some of the beneficiaries' employment contracts. This may present further difficulties for those seeking to enforce the bonus payments.

The fate of not only the bonus payments but the Credit Institutions (Stabilisation) Bill alike, may become matters for the judiciary to decide upon.

Oisin Scollard is Legal Counsel with Legal HR firm Employmentclinic.ie

http://www.tribune.ie/article/2010/dec/26/employment-law-oisin-scollard-fate-of-bonus-cultur/?q=scollard