The High Court has dismissed claims by two former DEPFA Bank employees who sought payment of deferred bonuses they forfeited after leaving the bank in 2008.
In a judgment delivered on 18 January 2012, Mr Justice Hedigan ruled that replacing deferred share awards with deferred cash awards was fair and reasonable in the circumstances of DEPFA’s takeover by Hypo Real Estate Group (HRE). The claims were heard together because they raised common issues.
The plaintiffs, Roland Lichters and Jurgen Hass, had each received a 2007 bonus award in February 2008. Lichters was awarded €200,000 in cash and €180,000 in deferred cash in place of shares. Hass was awarded €40,000 in cash and €40,000 in deferred cash. The deferred amounts were payable only if they remained employed by DEPFA in February 2010. Both resigned in April 2008 and did not receive those sums.
The bank said the takeover made further awards of DEPFA shares impossible. It argued the deferred cash was a reasonable substitute for the deferred share awards under the existing incentive scheme, which was intended in part to retain staff. The plaintiffs argued that the bank had no contractual right to defer cash bonuses or impose the employment condition, which they said had not been agreed in advance. They also argued the condition was an unenforceable restraint of trade.
The judge said the employment contracts included a discretionary bonus scheme with separate cash and deferred share plans. He doubted that the retention condition could properly be characterized as a restraint of trade, noting the plaintiffs were free to leave and work for competitors. He added that, even if the condition were a restraint, the question was whether a reasonable employer could have acted as DEPFA did.
The court applied the test that an employer breaches contract by exercising an apparently unfettered discretion in a way no reasonable employer would. The judge found that threshold had not been met. He considered HRE had to find a way to replace the deferred shares and that the cash scheme was fair and reasonable. The court therefore dismissed both claims. It did not award the deferred sums sought.