The EU Advocate General recommends rejecting the UK’s challenge to a legal cap on bankers’ bonuses

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Posted in:Banking and Finance|November 20, 2014 | Join the mailing list

On 16 April 2013, the European Parliament approved a directive imposing a cap on bankers’ bonuses. This cap is intended to reduce the incentive for bankers to take excessive risks, an incentive which many see as having led to the financial crisis and subsequent
recession.

The directive, when and if it takes effect in the EU member states, will restrict a banker’s bonus to 100% of his or her basic salary or 200% with shareholder approval. However, the UK Government has challenged the lawfulness of this legislation and has put
forward six arguments against both the scope and legal basis for the new rules. The Government argues that the EU Court of Justice should declare the directive unlawful and that consequently the member states should not have to bring the law capping bonuses
into effect.  

Today however, the EU Advocate General, Niilo Jääskinen, has issued a formal opinion, stating that he considers the limit on banker bonuses to be lawful and recommending that the Court of Justice should uphold the regulation. The Court of Justice does not necessarily
now have to follow this recommendation when it subsequently issues its judgment on the UK’s challenge, but often an Advocate General’s opinion does lead on to the Court issuing a judgment which is in keeping with that opinion.
The Advocate General also pointed out, in his opinion, that even with the directive in force, there will not really be a cap on bonus amounts, as all the directive limits is the ratio of basic salary to bonus. It does not cap the amount which can be paid to
a banker by way of basic salary and so large basic salaries will still be able to lead on to equally large bonus payments.

Nevertheless, the UK Government fears that the directive will lead to the City of London losing a competitive edge, because of the regulations driving valuable financial services business out of the EU. Banks have also argued that restrictive regulations are
driving top talent away, towards Asia in particular.

For more information about any of the above or for practical commercial advice on this or any other aspect of employment law, please contact Nigel Crebbin
of the Berg Employment Team on 0161 833 9211 or email him at
nigelc@berg.co.uk
.

Follow us on Twitter: @Berg_HR

(The information and opinions contained in this new alert are not intended to be comprehensive, nor to provide legal advice. No responsibility for its accuracy or correctness is assumed by Berg or any of its partners or employees. Professional legal advice
should be obtained before taking, or refraining from taking, any action as a result of this news alert.)

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