Banks and financial services firms at risk of employment litigation

City bosses may see resurgence in legal claims by disgruntled employees disappointed with poor bonuses, according to a specialist employment law firm.

In February the UK state-owned bank RBS reported a £3.5bn loss for 2014, down from a £9bn loss in the previous year. But the bank has said it will pay out bonuses from a pool of £421m, which is some 21 per cent smaller than in 2013.

Jon Gilligan, a partner at GQ Employment Law, explained that tougher EU and Prudential Regulation Authority as well as Financial Conduct Authority regulations on banker pay has made it impossible for banks to offset disappointment with weak bonuses this year by guaranteeing a bigger bonus next year.

"Every year since the credit crunch you get bankers who are disappointed with their bonus, but the options that banks have in terms of stopping that dispute turning into a legal claim have become more limited," he said.

"Whilst 2014 hasn't been a banner year for banks it hasn't generally been a crisis year, so more bankers have entered bonus season with reasonably strong expectations over bonuses."

Smaller City institutions, such as hedge funds and asset management firms, are unlikely to face the same restrictions, which mean they have greater discretion over how much they award their employees and in what form.

Gilligan says City staff disgruntled with their bonus often choose to bring bonus claims in the employment tribunal, as opposed to the High Court, as there is a much smaller risk they will have to pay for their employer's legal costs if they lose.

In addition, bonus claims are often brought as part of a discrimination or whistleblowing case, so as to access an employment tribunal without a cap on the compensation that can be awarded.

Gilligan continued: "Bankers will try wherever possible to frame their claim as a discrimination or whistleblowing case so they can use an employment tribunal and give themselves a better chance of winning.

"City staff will have more at stake if they take a case to the High Court. They will also need to prove that the bank didn't exercise its discretion reasonably, which can be very difficult to do."

He added that employees who are promised a bonus that they then don't receive will have the strongest legal case against an employer. "Banks and hedge funds that may have discussed a bonus of a certain value with an employee or had an informal conversation about what they might expect, may leave themselves open to a legal claim from an employee if their bonus is substantially less than discussed."

John van der Luit-Drummond is legal reporter for Solicitors Journal