It used to be said that, “My word is my bond” was the mechanism by which the City operated. However, what is the position where that word is an assurance that a discretionary bonus scheme will be operated in a particular way, e.g. according to a particular formula, but the written contract simply asserts the employer’s right to exercise its discretion as it sees fit?
Especially in the current political and regulatory climate this is a situation that occurs frequently. The “hiring manager” explains that, of course, in the current environment, there is no way he will be able to get a “hard guarantee” or “commission-style” arrangement past HR or Compliance, but “rest assured, this is how it operates in practice”.
Legally, the starting point is that an oral contract is every bit as binding as a written deal. The obvious practical problem is one of proof. In August 2014 it was reported that Andrew Brogden and Robert Reid failed in their attempt to get the High Court to enforce what they said was an orally agreed formulaic arrangement with Investec. The judge simply did not accept that such an arrangement would have come about without anyone documenting anything consistent with it. The challenge will have been a very costly one for the bankers to lose as they will have had to have met both their own legal fees and those of the bank.
So, what lessons can other workers in financial services learn from this experience? When it comes to oral arrangements, evidence is king. If the employer refuses to document the formula then the employee should follow up the conversation with the hiring manager with an email reflecting the commitment that was made, or if it is feared that will be too formal, then with a text message, Bloomberg chat, or a discussion on a recorded line. Failing that, a contemporaneous note in a notebook or on an iPhone would be significantly better than nothing.
Even if the employee can prove the conversation took place, that does not, of itself, make for a cast iron case. There are several other defences that an employer can run, aside from “the conversation never took place”. These include that any oral agreement was subsequently replaced by the written agreement, that the written agreement expressly excluded the earlier discussions, the oral agreement was subject to implied limitations, the hiring manager had no authority to bind the company, there was no intention to create legal relations, etc. However, as is so often the case with the law, there are very often ways around these types of defence but there is no way around poor evidence.