Wrinkle in Employment at Will Foils Employer’s Summary Judgment

Last week, a unanimous Franklin County Court of Appeals reversed summary judgment previously entered in favor of an employer on a breach of written bonus agreement brought by a terminated executive. Pate v. Quick Solutions, Inc. No. 2011-Ohio-3925. In that case, the employer had entered into a written agreement with the executive specifying, among other things, his salary, stock and cash bonus and employment at will. The terms of the stock bonus were to be subject to the terms of the employer’s attorney, but were never attached as specified within 90 or more days. The employer later modified the executive’s salary (by increasing it) and discussed making the bonus discretionary, but there was a factual dispute as to whether the terms of the discretionary bonus were ever reached or mutually agreed to. The employer initially contended that the bonus had been modified to be discretionary, but conceded upon cross examination that the prior bonus formula had largely been followed. The employer’s attorney argued that the stock bonus had to be returned upon termination, but the court eventually rejected that argument for lack of a written agreement and when it was disputed by the executive. Finally, the employer argued that the executive had not lost any money because the amount of his raise was larger than the amount of the allegedly unpaid bonus. Therefore, the employer argued that the executive should be stopped from contending that the employer breached the bonus agreement. This argument was also rejected.

The executive had been terminated for unprofessional conduct involving female employees. He then sued and lost for age discrimination and also contended that his bonus agreement had been breached when the employer only paid part of the bonus due each year and failed to transfer any stock. The executive contended that he had not pushed the bonus issue earlier because he saw how the CEO retaliated against employees who complained about their compensation. The employer pointed out that the executive was employed at will and the terms of his compensation had been unilaterally modified after his first year of employment, resulting in a raise in salary and conversion of the bonus formula to a discretionary bonus. Because the executive acquiesced and continued to work under the terms of the new compensation arrangement, he could not later challenge it. The trial court agreed with the employment at will theory and granted summary judgment for the employer.

On appeal, the court found that there was a factual dispute as to whether the terms of the executive’s cash bonus had been modified. While the parties agreed that the executive had been given a raise in salary, salary is different from a bonus. The discussion about the bonus continued over several years and was never reduced to writing. While the CEO contended that an agreement had been reached when the executive was given a raise to convert the bonus formula to a discretionary bonus, he conceded on cross examination that he still followed the old formula (for the most part) because “that was the plan that was in place.” Therefore, when the executive denied that a meeting of the minds had been reached to change the bonus formula and the employer had not acted consistently with a discretionary bonus agreement, there was a factual dispute. While employment at will provides that the employer may unilaterally change the terms of employment, the employee still has the option to quit or to continue working under the new terms. Without evidence that the new terms have been communicated to and accepted by the employee, there can be no binding modification from the mere fact that the executive continued to work. In other words, there was no clear evidence of acquiescence by the executive because there was no clear evidence of modified terms. “Importantly, continuation of employment after a modification only constitutes assent if the employer notifies the employee of the modification or the employee otherwise knows of it.”

The employer also attempted to argue that the executive’s acceptance of the reduced cash bonuses constituted knowledge of and acceptance of the new bonus plan. However, the court found the evidence was not strong enough to show knowledge or consent under the circumstances. Nonetheless, if a jury found that the executive had knowledge that the terms has changed and he continued to accept the reduced cash bonus with that knowledge, then the executive would lose.

The court rejected the employer’s estoppels argument, which was based on the fact that the amount of salary exceeded the amount in dispute with the bonus. The employer pointed out that the amount of the executive’s raise in salary more than offset the amount of allegedly unpaid bonus. However, again, the court found these to be two separate issues. An employer’s compliance with one component of compensation (i.e., salary) does not excuse the breach of a different component (i.e., bonus). Further, the executive’s receipt of the cash bonus and raise in salary did not estop him from arguing a breach of his written agreement because there was insufficient evidence that his acceptance was inconsistent with his claims.

The executive also pointed out that he had never received any of the stock bonus he had been promised in his agreement. The stock bonus was subject to terms to be developed by the employer’s attorney within 60 days, but were never developed or attached to the agreement. The attorney contended that it was to be the same as the stock purchase plan already in place (requiring a return of the stock upon termination), but the executive disagreed and pointed out that a grant of stock is different from a stock purchase. The trial court sided with the employer, but the Court of Appeals reversed on the grounds that no meeting of the minds had been reached.

In short, the employer suffered from attempting to make an oral modification of a written agreement. The lesson to be learned is to always confirm modifications of the terms of employment in writing, particularly if the modifications are to a written agreement so as to prevent any confusion or later dispute between the parties after memories have faded and biases are formed.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.