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Cash Bonus Litigation (By Employees vs. Employers)
General Contract Law Principles

2020.01.16 "Aramark Strikes $21M Deal To End Managers' Bonus Suit" -- Bloomberg, by Emily Brill:

  • Aramark Corp. and a group of several thousand workers have asked a Pennsylvania federal judge to sign off on a $21 million settlement that would resolve a suit claiming the company reneged on its promise to pay bonuses to managers in 2018.
  • If approved, the settlement agreement will require the Philadelphia-based food service and facilities management company to distribute about $15.5 million to roughly 4,500 managers who were eligible for bonuses in 2018 but did not receive them. The rest of the money will go toward paying attorney fees, according to a motion for preliminary approval of the settlement, which was filed Wednesday.

2019.11.27   Good Faith and Fair Dealing. Principles of fairness generally entitle executives and other employees to collect bonuses and other performance-based compensation if applicable goals have been satisfied, as well as if failure occurs due to improper employer action.  Regarding the latter, the First Circuit's decision in Suzuki v. Abiomed cites Massachusetts law for the following equitable principles that many courts will apply:

  • Employers have been found liable under the implied covenant in "varying contexts and subject to strict limitations." Ayash, 822 N.E.2d at 684. Of particular pertinence for present purposes, the Massachusetts Supreme Judicial Court (SJC) has held "that an employer is accountable to a discharged employee for unpaid compensation if the employee [was] terminated in bad faith - 15 - and the compensation is clearly connected to work already performed." Harrison v. NetCentric Corp., 744 N.E.2d 622, 629 (Mass. 2001) (citing Fortune v. Nat'l Cash Register Co., 364 N.E.2d 1251, 1257 (Mass. 1977)). In this context, the paradigmatic example of bad faith occurs when an employer seeks to avoid the payment of earned compensation by discharging an employee who is "on the brink of successfully completing" a sale or some other milestone that will trigger entitlement to the disputed compensation. Fortune, 364 N.E.2d at 1257; accord Maddaloni v. W. Mass. Bus Lines, Inc., 438 N.E.2d 351, 356 (Mass. 1982).


2019.11.21 Another Backfire from Moving Bonus Goals. Law360's article titled "Aramark Nears Deal To End Suit Over Manager Bonuses" reports that a settlement is expected for class action litigation that had its roots in discontent described in the Philadelphia Inquirer's article titled ‘Moving the goal post’: Why thousands of Aramark managers didn’t get their 2018 bonuses" (2019.02.13).  See 2018.06.05 item below titled "Moving the Bonus Plan Goalposts - Be Smart or Be Sued." 

2019.10.23 "Bonus entitlement on basis of reasonable expectation" from Fasken Law includes the following discussion regarding the severance pay considerations that arise from bonus expectations:

  • The British Columbia Supreme Court recently found that an employer's refusal to pay a discretionary bonus can lead to a finding that the employer breached the employee's contractual rights where, over the course of their employment, the employee receives the bonus in a way which leads them to believe that their employer's discretion to provide the bonus will continue to be exercised in their favour.


2018.08.23  EBITDA allegedly Manipulated (lawsuit).  According to a Law360 article titled "Sweetener Co. Altered Data To Avoid Exec Awards, Suit Says" (subscription needed), a company's three-year bonus plan hinged on its EBITDA, which participants claim should have triggered payment of a portion of their calculated incentive awards. However, the lawsuit seeks "hundreds of thousands" of bonus payments" (per Law360), based on the complaint's allegations that --

  • Merisant concealed its 2017 EBITDA calculations from plaintiffs and refused plaintiffs’ repeated requests for information”; and
  • At the same time, and unbeknownst to plaintiffs, Merisant and its CEO were busy revising and manipulating the finances of the company to hide actual EBITDA."


2018.06.05  Moving the Bonus Plan Goalposts - Be Smart or Be Sued.  Whenever a company announces performance goals that apply to cash bonus, equity award, or vesting conditions, there is some risk that affected employees will later question the end-of-period determinations. Well-drafted plans and programs include significant employer protections. But some defects can haunt, such as the failure to allow for the impact of a future merger or acquisition, or the omission of a maximum limit.  Panera Bread tried to recover from the latter, but lost in the 8th Circuit because its bonus plan did not clearly reserve a right for Panera to unilaterally modify or terminate the plan. As a result, the court held in Boswell v. Panera that "Since the managers had begun performing the unilateral contract offer, Panera was not entitled to move the goalposts on them by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer." Whether drafting a new plan or handling one that is already in place, solutions are available to employers who act quickly and smartly.  Note this case was decided under Missouri law.  See generally Litigation Precautions. 


Banking

  • 2011.July.15  Former Employees Lose Bonus Claims (TARP Involved). Employees who resigned rather than consent to the Treasury Department's TARP requirements did not establish an involuntary or constructive termination, nor a breach of their employer's covenant of good faith and fair dealing when "Hartford acted in compliance with the terms of the Plan in denying ... further compensation or payments after they resigned."  Twin City vs. Arch Insurance (PDF available on request), NY Sup. Ct, NY County, 7/12/2011.  


State Contract Claims
New York Law 

2011.Sept.30  Former Employee Loses Contract-based Bonus Claims. Applying NY law, the Southern District of NY reviewed and dismissed multiple contract-based claims by which a former executive sought to collect a pro rata portion of his formula-based bonus for the year in which he resigned from employment. Here are relevant quotes from Devon v. Societe General:

  • Plaintiff makes much of the fact that his bonus was “formula-based” and not subjectively determined. But this observation, even if true, does nothing to alter the non-contractual nature of his bonus compensation. Whether based on a formula, seniority, a committee, or a Ouija board, Plaintiff’s bonus was never guaranteed, other than in 1990 and 1994. In the absence of such a contractual arrangement, Plaintiff cannot claim that he was entitled to a particular bonus."
  • A guaranteed bonus in year one, followed by comparable bonuses in years two and three, does not create an entitlement to an equal bonus in years four and beyond. As noted above, “entitlement to a bonus only exists where the terms of the relevant contract require it.” Vetromile, 706 F. Supp. 2d at 448. Absent a guarantee, Plaintiff’s expectations concerning his 2006 bonus were just that – expectations, which are not the equivalent of a contract.
  • Plaintiff’s claims under New York Labor Law fail as a matter of law because, like the bonus payment in Tischmann, his compensation does not constitute “wages” within the meaning of the statute.
  • As discussed above, there simply was no contract between Plaintiff and SG that entitled him to a bonus for 2006 and 2007. Absent such an agreement, Plaintiff cannot prevail on his claim for breach of the covenant of good faith and fair dealing other than under the 1990 and 1994 Agreements.