Ohio Appellate Court Rejects Most of Employee’s Incentive Compensation Claims

Last month, the Ohio Court of Appeals mostly affirmed an employer’s summary judgment in a case where a former employee challenged the amount and payment of his incentive compensation.   Bollman v. Lavery Automotive Sales, 2019-Ohio-3879.  The employee never signed an incentive compensation agreement and, instead, relied on a chart that the employer distributed each year summarizing its compensation plan. The court found that the employer was free to change that chart and incentive plan at will.  Further, the court found that sales commissions do not constitute wages under Ohio’s prompt payment statute.  However, the court agreed with the employee that the employer had been unjustly enriched when it deducted $20/per car more from the bonus pool than it was being charged by GM for its incentive compensation system.


According to the Court’s opinion, the employee was employed at will as a sales consultant.  He was paid a salary plus a commission for every car he sold over 10 each month based on a bonus chart provided by the employer when he was hired.  After 6 years, the employee began participating in a GM incentive program that paid $100/car sold and required the employer to pay $25/car into the bonus pool.   This GM program was in addition to the commissions he received from his employer.  The employer informed its sales staff that it would deduct the GM $25/car charge from their bonus pool.  When GM increased the charge to $30/car, the employer began deducting $50/car from the bonus pool.  When the employees objected, the employer told them that they could resign.   The employee resigned a few years later and brought suit.

The Court rejected the employee’s breach of contract claim based on its deduction of the GM charge from the bonus pool.  The chart did not contain any explicit terms and he conceded that other incentive compensation plans were not documented either.  Further, employee admitted that the employer orally informed him that it would be deducting the GM charge from the bonus pool and that the employer continued to pay his base salary.  The employee objected, but continued to cash his paychecks.   The employer was free to change the compensation plans at will.

The Court also rejected the employee’s claim that the bonus deduction violated Ohio’s prompt wage payment statute: “The per vehicle dealer contribution charges Appellee withheld were deducted from Appellant’s commission. This Court has held the definition of the word “wage” as used in R.C. 4113.15 does not include commissions, which are not guaranteed pay or reimbursement for expenses.”


The Court, however, agreed with the employee that the employer may have been unjustly enriched by deducting $50/car from the bonus pool when GM was only charging it $30/car.

The doctrine of unjust enrichment “applies when a benefit is conferred and it would be inequitable to permit the benefitting party to retain the benefit without compensating the conferring party.” Garb–Ko, Inc. v. Benderson, 10th Dist. No. 12AP–430, 2013–Ohio–1249, ¶ 25 (Citation omitted). The elements of an unjust enrichment claim are: (1) the plaintiff conferred a benefit on the defendant, (2) the defendant knew of the benefit, and (3) it would be unjust to allow the defendant to retain the benefit without payment to the plaintiff.

While the Court had no problem with the employer offsetting the amount it was charged by GM from the employee’s sales commissions/bonus pool, it concluded that the employer “was unjustly enriched by deducting amounts which exceeded the per vehicle dealer contribution charge it paid to General Motors . . . “


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.

Franklin County Court Rejects Plaintiff’s Reliance on Error in Emailed Negotiations

Earlier this month, the Franklin County Court of Appeals affirmed an employer’s summary judgment on an employee’s breach of contract and promissory estoppel claims based on emailed negotiations over her severance pay when the emails contemplated a final, signed agreement which was never executed by the parties.  Watson v. Franklin University, 2019-Ohio-2929.  The plaintiff requested 18 months instead of the offered 6 months of severance pay and the employer initially appeared to agree in an email, which was corrected later that same afternoon to change the date from 2014 from 2015.  Because the plaintiff sought 18 months of severance pay, this implicated the statute of frauds because performance would last more than one year and the requirement for a signed agreement could not be satisfied through promissory estoppel.  Further, the plaintiff could not show justifiable reliance on an email which agreed to the 18 months of severance when the email was corrected later that same afternoon to change the date from 2015 to 2014 and the parties never signed a formal severance agreement.  There was no evidence that she relied on the morning email to her detriment by rejecting job offers in reliance on the morning email before it was corrected.  Accordingly, she could not prove a valid claim for promissory estoppel.


According to the Court’s opinion, the plaintiff was hired in 2011 and was notified that her job was being eliminated and her employment terminated on November 13, 2013.  She was offered 6 months of severance, contingent on signing an agreement and release of claims and on a reduction in the severance pay if and when she obtained other employment. She had previously negotiated a severance agreement in connection with a prior job and had retained an attorney to advise her.   She countered a couple of weeks later requesting 18 months of severance that would not be reduced if and when she obtained another job.  After speaking with the employer on December 3, the employer emailed her that same morning confirming their conversation about severance pay through May 2015 without being reduced by other employment. A formal agreement was to follow with the new terms.   Later that same afternoon, the employer emailed her to explain that it had misread the dates and that it was only willing to pay severance through May 2014 – i.e., six months.   It sent her the formal agreement to sign, but she refused to sign it because it only promised six months of severance pay. 

She brought suit for claims of breach of contract, breach of the covenant of good faith and fair dealing and promissory estoppel.  The trial court granted summary judgment on the first two claims prior to discovery and on the promissory estoppel claim after discovery.   She appealed.


The Court agreed that the statute of frauds applied to an agreement to make installment payments for more than a year and would have applied to the parties’ severance pay agreement.   The plaintiff attempted to argue that the emails exchanged discussing the terms of the severance agreement satisfied the statute of frauds and indicated the employer’s initial agreement with her demand.  However, “that e-mails purporting to reference an agreement or some aspect of an agreement are not sufficient to satisfy the statutory requirement for a signed agreement as provided for in R.C. 1335.05.”  Further, the emails reflected that both parties anticipated the signing of a formal agreement and were not relying on the emails as the contract. “Where the evidence establishes that it was the expectation of all parties that no meeting of the minds would occur absent a final written agreement signed by all the parties, no party can base a legal claim on communications or correspondence that comprise the interim negotiations.”   This is particularly true when the negotiating parties are sophisticated in terms of education, experience and advice of counsel.  Finally, the Court refused to use promissory estoppel to satisfy the statute of frauds.


The Court also affirmed dismissal of the promissory estoppel claim on the basis that she could not show that she  reasonably relied or detrimentally relied on the employer’s morning email appearing to agree to the 18 months of severance.  In order to prove a promissory estoppel claim, the plaintiff must show, among other things, that she relied to her detriment on the false promise and that her reliance was reasonable.  In this case, however, “'[i]f a written agreement is contemplated, reliance upon statements made before an agreement is signed will be unreasonable as a matter of law, particularly when sophisticated business parties are involved in the negotiations.”  In light of her experience, she was considered to be a sophisticated party.  Further, the evidence showed that the plaintiff never changed her position, let alone relied to her detriment, on the morning email appearing to agree to the 18 months of severance before that misunderstanding was clarified in writing in the afternoon.


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 be changed or 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.

Fayette County Appeals Court Affirms Non-Competition Damages and Prevailing Party Attorney Fee Award

On Monday, a unanimous Fayette County Court of Appeals addressed the other half of the non-compete/tortious interference case between dental practices blogged about here last May.  In it, the Court affirmed the $125,000 jury verdict against the defendant dentist for breaching the non-competition clause in his sales agreement with the plaintiff dentist and the reduction of the successful dentist’s attorney fees award (pursuant to the loser pay provision in the contract) to $95,988 based on prevailing attorney fee rates in Fayette County of $250/hour.  Ginn v. Stonecreek Dental Care, 2015-Ohio-4452.  The Court found that the 30-mile non-compete restriction was clear on its face in a contract containing an integration clause and could not be clarified with extrinsic evidence to mean anything other than 30 straight-line miles.  Finally, the jury was entitled to base its damage award on the plaintiff’s testimony of lost revenue.

According to the Court’s opinion, the defendant dentist sold his Washington Court House practice to the plaintiff dentist in 2010 and, as part of that sale, agreed to work one day per week for the plaintiff dentist and not otherwise practice dentistry for 5 years within 30 miles of the plaintiff’s practice.  The contract also provided that the prevailing party would be entitled to attorneys’ fees in the event of litigation over a breach of the agreement. The defendant dentist resigned six months later and began working for StoneCreek Dental in Chillicothe.  StoneCreek’s office was less than 30 straight line miles from the plaintiff dentist’s office, but was more than 30 driving miles.  The plaintiff dentist brought suit and the jury awarded him $125K plus interest.  The trial court dismissed the claims against StoneCreek, but that dismissal was reversed in part on appeal in May.

First, the Court held that it was not an abuse of discretion to reduce the attorneys’ fees to $250/hour based on the prevailing rates in Fayette County instead of the actual rates of the Franklin County attorneys. The plaintiff’s attorneys had requested $143,595 plus expenses.  The trial court based its analysis on the factors listed in Professional Rule of Conduct 1.5.  In addition, the trial court properly excluded litigation expenses because the contract only required the payment of fees and not expenses.  Without a controlling contract or statute, the American Rule requires each party to pay their own fees and expenses. 

Second, the Court held that it was proper for the jury to base its award on the plaintiff’s testimony about the revenue he lost when the plaintiff resigned to work for a competitor.  Damages for breach of a non-competition clause is generally based on lost profits.   As the Court held last May, mathematical certainty is not required.  The plaintiff dentist testified about his past revenue and the increase in revenue he realized while the defendant worked for him for six months.  He doubled that amount to show how the revenue would have increased in a year.  Because his overhead did not change, the increased revenue constituted profit that he lost when the defendant began competing against him during the five-year non-competition period. “Whether the revenues actually represented lost profits as testified to by Dr. Ginn relates to Dr. Ginn's credibility and was for the jury to decide.”    

Finally, the Court rejected that defendant’s argument that the 30-mile territorial restriction was ambiguous where the parties each had different interpretations of the restriction.  It also refused to consider extrinsic evidence – i.e., evidence outside the four corners of the contract – to interpret the 30 mile restriction because it was plain on its face and unambiguous.   The contract contained an integration clause which precludes the parties from attempting to contradict its terms with other evidence about other side-agreements.  Further, Ohio courts have routinely interpreted similar restrictions to refer to straight-line miles instead of driving miles.

 

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 be changed or 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.

Franklin County Appeals Court Remands Incentive Compensation Claim and Dismisses Whistleblower and Reverse Discrimination Claims

Last week, a unanimous Franklin County Court of Appeals affirmed the dismissal on summary judgment of whistleblower and reverse race discrimination claims, but remanded the highly-compensated plaintiff’s equitable claims for a six-figure profit bonus on the grounds that the written bonus plan was unenforceable to bar his equitable claims because there was no evidence that the plaintiff knew about or had agreed to its terms and because the employer’s “promises” to award a bonus in its unfettered discretion were illusory. Pohmer v. JPMorgan Chase Bank, N.A., 2015-Ohio-1229 (3-31-15).  In affirming the dismissal of the race discrimination claim, the Court agreed that the plaintiff had not shown that the defendant employer was unusual in discriminating against the majority, that he was similarly situated to his supervisor, or that the explanation for his termination (violating the employer’s technology policy by inappropriate and personal use of his blackberry and email) was pretextual.  He could not prevail on his whistleblower claim because he could not prove that he had ever made any relevant complaints to his employer in writing and the trial court did not abuse its discretion in refusing to compel additional electronic discovery that was unlikely to reveal additional relevant evidence without exorbitant costs. 

According to the Court’s opinion, the plaintiff had received very favorable performance evaluations for over a decade, the most recent of which was in December 2011.  He had been assured in writing that he would be receiving a 4.5% profit bonus for 2011.  However, in a random review of his text messages and emails, the employer discovered that he had been sending inappropriate sexual-themed emails and messages to his children’s babysitter and co-workers in violation of the employer’s technology code of conduct.  He was soon terminated in mid-January 2012.  A few days later, the employer set the amount of discretionary incentive compensation and awarded bonuses to remaining employees a few weeks later.  The plaintiff filed suit and alleged, among other things, that he was subjected to reverse race discrimination because his supervisor also sent inappropriate emails and was not fired.  Second, he claimed that he had actually been fired in retaliation for reporting to his supervisor that one of the employer’s financial product campaigns was an illegal scam.  However, he could not produce any written evidence that he had ever made such an allegation prior to his termination despite the employer’s production of thousands of pages of emails and texts messages.  He also claimed that he was entitled to his profit bonus since he had earned it prior to his termination.

Incentive Compensation.  The trial court had dismissed his claim for his incentive compensation on the grounds that the employer’s Performance Based Incentive Compensation Plan (PBIC) was a binding implied-in-fact contract, thus barring any equitable claim under the theories of unjust enrichment or quantum meruit.   Pursuant to the terms of the PBIC, the Plaintiff was not entitled to any profit bonus or incentive compensation unless he was still employed on the date when the profit bonus was actually paid.  However, the Court of Appeals found that the PBIC could not be a contract since there was no evidence that the plaintiff even knew about the PBIC, let alone agreed to it.   All that the employer produced was an unsigned plan document and not any communications to the Plaintiff about the PBIC or indication that the Plaintiff’s employment and incentive compensation were subject to the PBIC.  Moreover, to the extent that the PBIC contained any promises, they were illusory (and thus, non-binding) since the employer retained “sole and absolute discretion” as to when, whether, and in what amount to award bonuses.  In contrast, the plaintiff produced evidence of a powerpoint presentation about the incentive compensation he was eligible to earn for that year and an email from his supervisor about the percentage of his profit bonus; neither exhibit made any reference to the PBIC or any requirement that he needed to still be employed on the date that the bonus was paid.

The doctrine of unjust enrichment “applies when a benefit is conferred and it would be inequitable to permit the benefitting party to retain the benefit without compensating the conferring party.” . . . A claim for quantum meruit shares the same essential elements as a claim for unjust enrichment, and both doctrines are equitable doctrines.  . . .  the two doctrines differ, however, when calculating damages.  The damages for unjust enrichment are " ' "the amount the defendant benefited," ' " while the damages for quantum meruit are " ' "the measure of the value of the plaintiff's services, less any damage suffered by the other party." ' "

 . . . 

"A contract is illusory only when by its terms the promisor retains an unlimited right to determine the nature or extent of his performance; the unlimited right, in effect, destroys his promise and thus makes it merely illusory." . . . . In deciding that the PBIC Plan is an illusory contract with respect to [the plaintiff], we do not mean to say that the PBIC Plan would be illusory under all circumstances. This is not a case where [the plaintiff] was made aware of the terms of the PBIC Plan and thereby assented to the PBIC's terms in exchange for his continued employment with JPMC.

Reverse Race Discrimination.  The Court of Appeals affirmed the dismissal of this claim because the Plaintiff failed to meet his prima facie case or show that the employer’s explanation was pretextual.  First, the Court adopted the heightened burden of proof for a reverse race discrimination claim, which requires evidence of “background circumstances supporting the inference that [the defendant employer] was the unusual employer who discriminated against non-minority employees.”  The plaintiff could not meet this burden, although he correctly argued that some courts have questioned the correctness of using a modified burden of proof in any race discrimination claim.    

In any event, the Court found that the Plaintiff did not identify any similarly situated non-white employees who were treated better.   The Plaintiff identified his supervisor for sending inappropriate personal emails because he only received a disciplinary warning, but the Court found him not to be similarly situated “in all respects” (i.e., “ 'all of the relevant aspects of his employment situation were "nearly identical" to those of the [comparable employee's] employment situation.'").  

Thus, to be deemed "similarly situated," "the comparables 'must have dealt with the same supervisor, have been subject to the same standards and have engaged in the same conduct without such differentiating or mitigating circumstances that would distinguish their conduct or the employer's treatment of them for it.'

They obviously did not report to the same supervisor.  “[A] supervisor's "position of authority within the company create[s] a meaningful distinction" that "explains [the employer's] different treatment of the two.” More importantly, the employer did not learn of the supervisor’s alleged misconduct until the plaintiff raised it after his termination (presumably during his deposition).  “Other factors may have been at play including a discrepancy in the volume, frequency, and level of inappropriateness contained in the emails of each of the two men.”  

Ultimately, the Court found that the plaintiff could not show that his termination for admittedly violating the employer’s code of conduct was pretextual.   He could not “demonstrate that the proffered reason ‘(1) has no basis in fact, (2) did not actually motivate the employer's challenged conduct, or (3) was insufficient to warrant the challenged conduct.’"  Importantly, he could not show that the employer knew of any other similar violations of the code of conduct (including that of his supervisor) at the time of the Plaintiff’s termination in January 2012.   

Whistleblowing.  The trial and appellate courts both concluded that the plaintiff could not prevail on his whistleblower claim because he could not satisfy the statutory requirement that the complaint be made in writing to the employer after first making a verbal report.  The employer had produced several thousand pages of documents in discovery, including emails and text messages.  The plaintiff insisted that he had texted and/or emailed his supervisor (in addition to personal conversations) about his objections to the legality of a product campaign.  However, his alleged objections were not reflected in the documents produced in discovery.  Therefore, he could not satisfy his statutory burden of proof under Ohio’s whistleblower statute.   

The Plaintiff filed a motion to compel a forensic examination of his email and text mail boxes to ensure that none of his messages were inappropriately deleted by the defendant employer.  However, the trial court denied that discovery motion on the grounds that it was “unlikely to lead to admissible evidence and disproportionately costly.”  The appellate court found this not to be an abuse of discretion in light of the thousands of pages produced in discovery.  Moreover, it noted that the Plaintiff’s  

argument has less to do with the adequacy of the discovery process and more to do with [his] dissatisfaction that he did not discover sufficient evidence to support his claims. The trial court noted it had made an effort throughout the case "to keep discovery proportionate to the issues, and to sensibly minimize the financial cost and time burden which electronic discovery might otherwise require."

Indeed, the supervisor denied ever receiving such a written report and the Plaintiff failed to mention any written objections about the product campaign in his own deposition.

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 be changed or 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.