LAWFUEL – Business Law Newswire – JPMorgan, advised by Linklaters, has today won its High Court battle against ex-trader Daniel Ridgway, who sued the bank for USD$3.5m in an alleged lost incentive compensation.
This is the latest in a series of recent cases in which the discretion of banks and City institutions to award bonuses to their employees has been examined by the courts. Most recently, it follows the Court of Appeal decision of Commerzbank v Keen, in November 2006, in which Commerzbank successfully defended a claim against another trader that his bonus was too small. Linklaters also advised Commerzbank in this case.
Mr Ridgway left JPMorgan in early 2004, having spent the majority of the previous trading year on an unpaid sabbatical. At the conclusion of his sabbatical, Mr Ridgway was offered a range of alternative roles to encourage him to return to the bank, none of which were considered by Mr Ridgway to be suitable. Mr Ridgway had, instead, requested that he should be given back his old role even though it had been filled during his sabbatical period and was therefore no longer available.
After Mr Ridgway and the bank could not reach agreement on a role, he resigned and claimed constructive dismissal.
In the High Court, Mr Ridgway pursued a claim against the bank which included compensation for unvested stock awards he lost as a result of resigning, as well as compensation in lieu of receiving a nil bonus for the year he was largely on sabbatical.
The case has drawn interest because it was the first ‘City bonus’ case to go to full trial following the landmark decision of Commerzbank v Keen, which was handed down by the Court of Appeal earlier this year.
The High Court today dismissed all of Mr Ridgway’s claims against JPMorgan.
The Court decided that Mr Ridgway’s stock was properly forfeited after Mr Ridgway refused to return to work despite being offered a suitable alternative role. The Court also rejected outright Mr Ridgway’s allegation that a verbal assurance had been given to him by a senior manager that he would be entitled to keep his stock if he left “on good terms”.
As to Mr Ridgway’s bonus claim, the Court rejected Mr Ridgway’s allegation that the bank’s bonus process was lacking in fairness. It accepted that Mr Ridgway’s line managers were entitled to award him a nil bonus after taking into account his personal circumstances, including the fact that he had been on sabbatical for most of the year.
The Court acknowledged that JPMorgan had followed a fair bonus assessment process, despite awarding Mr Ridgway a nil bonus award.
The case has important ramifications for the City’s financial sector because it is the first case to look in detail at the bonus-decision process following the guidelines given by the Court of Appeal in the Commerzbank v Keen case.
The case is also significant as it concerns a decision to award a nil bonus to a trader. Following the Commerzbank v Keen case, in which the bonus awards complained of by Mr Keen were very large, some legal commentators sought to limit the impact of the case by suggesting that it would not affect traders who had been awarded a nil bonus. However, in the Ridgway case, the Judge referred to the Commerzbank v Keen decision and stressed that “the task of proving irrationality or perversity in the exercise of the bank’s discretion to award a bonus is a daunting one”.
Darren Isaacs and Jillian Naylor, lawyers in Linklaters’ employment practice, acted for JPMorgan against Mr Ridgway. Andrew Hochhauser QC and Andrew Tabachnik also represented JPMorgan.
Darren Isaacs, Linklaters counsel, said:
“This decision provides long-awaited recognition that banks’ bonus procedures are not something courts will rush to intervene in, except in the most extraordinary of cases”.
Jillian Naylor, Linklaters associate, added:
“Following this decision and the Keen case we can expect to see more banks defending bonus claims rather than reaching for the cheque-book”.