The Frustration of Bankers' Employment Contracts by Effect of the EU Bonus Cap

Abstract

In the author's submission, an employment contract can be frustrated at common law for cessation of its commercial purpose. Relying on the courts’ construction of employment contracts in the investment banking industry, the author finds that a bonus term goes to the root of a banker’s contract, which becomes frustrated when an external event such as the EU bonus cap prevents the bank from determining the value of the bonus as the parties reasonably expected at the time of formation of the contract. It follows that by operation of Section 1(3) of the Law Reform (Frustrated Contracts) Act 1943, the benefit that the employer has enjoyed by virtue of the employee's work in consideration of the prospective bonus should then be justly restituted. Contrary to the current legal interpretation of s 1(3), the employment context provides a unique illustration that the ‘benefit’ should be assessed objectively at the point of its receipt by the employer, and not after the frustrating event in order to ensure consistency with the underlying principle of unjust enrichment.