Case makes city bonuses more 'golden handcuffs' than an employment right

City traders who leave their jobs midway through the year are not entitled to a share of Christmas bonuses regardless of how much money they have earned for their employer, the Court of Appeal said today.

Dismissing the bulk of a case brought by James Keen, a former star trader at Commerzbank who sued the bank claiming it owed him £8 million in bonuses, the court said that the payments were discretionary and the bank was within its rights to award them as it saw fit, or to even withhold them altogether.

The ruling is a blow for workers throughout the City especially those who, like Mr Keen, are made redundant part way through a bonus year. Although bankers receive relatively high monthly salaries, the vast majority of their total pay comes in the form of a bonus, which is often equal to as much as ten times their salary.

Suzanne McKie of the Employment Lawyers Association, said: "The decision deals a major blow to those City workers convinced their discretionary bonuses are not the size they should be."

Mr Keen ran Commerzbank’s successful "Special Situations" trading desk – a kind of in-house hedge fund that bet the bank’s own capital in the financial markets – and was one of the bank's highest bonus earners until the bank closed the desk and made him redundant in May 2005.

Mr Keen received no bonus for 2005 but claimed he was entitled to a share of the profits his team had generated that year. He also claimed that his previous bonuses — €2.95 million (£1.9 million) in 2003 and €2.85 million (£2 million) in 2003 — where too small and demanded they be increased.

But in a written judgement, Mr Mummery said: "Mr Keen has no real prospect of establishing at trial that Commerzbank acted in breach of contract by exercising its discretion… in respect of the amount of the discretionary bonus payments."

Commerzbank said the ruling "confirms that the exercise of the bank's discretion with regards to bonus awards was both reasonable and appropriate".

Nicola Rabson, managing associate at Linklaters, lawyers for Commerzbank, said: "The decision will give financial institutions some breathing space, especially for those fearful of challenges over the next bonus round."

The court refused Mr Keen permission to appeal the House of Lords, although he can still apply directly.

But the judges did allow a separate claim, concerning withdrawn share options, to proceed to trial. That claim centres on the issue of whether Commerzbank can legitimately nullify share options awarded to Mr Keen on the basis that he is no longer employed at the bank.

Mr Keen, represented by Charles Ferguson Solicitors, claims his contract did not specify this, a point the bank disputes but which the judges believe should be decided at a full hearing.

Mr Ferguson did not return calls seeking comment.

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