Limit Your Risk of Being Sued for Withholding Bonus Payments

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Many companies have bonus plans that require the employee to be employed through a certain date before the right to be paid vests.  If such a plan is in place, any employee terminated reasonably close to the vesting date is likely to demand payment of the bonus, claiming that his termination was a ruse designed to avoid the company’s obligation to pay him.  Unfortunately, employers who legitimately terminate employees near such a vesting date often get leveraged into paying monies that they legitimately should not have to pay because a contingent fee attorney has threatened to sue.  In Weiss v. DHL Express, Inc., however, the First Circuit implicitly gives employers a road map as to how they may be able to avoid such issues.

In Weiss, DHL had a formal, written bonus plan, and the company informed Weiss in 2007 that he had been selected to participate in that plan.  As such, Weiss became eligible for a $60,000 bonus if he (i) remained with the company through 2009, or (ii) was terminated without “good cause” before the end of 2009.

Of course, you know what happens next… Weiss was terminated in September of 2009, and DHL refused to pay him a bonus, contending that the termination was for good cause. Weiss then sued DHL, claiming that there was not good cause to terminate him, and the case went to trial.  The trial judge instructed the jury that if it found that Weiss was not terminated for good cause, DHL owed him the bonus, and that is exactly what the jury found.

DHL appealed the verdict, arguing that the issue of good cause never should have been put to the jury because the bonus plan delegated to the company’s Employment Benefits Committee the right to determine whether Weiss’s termination was for good cause, and the Committee had decided that there was good cause to terminate Weiss.  While such an argument plainly is based on a stacking of the deck in the company’s favor, the First Circuit had no compunction in agreeing with DHL:

The plain language of the Plan designates the Committee as the sole arbiter of whether a Plan participant is terminated for good cause. The [Bonus] Plan document makes clear that it is for the Committee to determine bonus eligibility and to construe the Plan’s terms. The Plan specifies that the Committee ‘shall have full power and discretionary authority’ to make determinations under the Plan and that its decisions regarding ‘rules and regulations, interpretations, selections, determinations, approvals, decisions, delegations, amendments, terminations and other actions, shall be final, conclusive and binding.’ In short, as the Plan administrator, the Committee was given broad discretionary authority to determine all matters pertaining to the Plan, including whether a participant qualified for payment.

Weiss’s loss on appeal was not only a victory for DHL, but it also provides a nice road map as to how in-house counsel can draft deferred bonus plans to better protect their companies from the risk of being leveraged into paying out money that is undeserved.  Further, while patterning your company’s deferred compensation plan after DHL’s may not act as a silver bullet to eliminate all unjustified demands for payments, doing so, and having a copy of Weiss v. DHL Express, Inc. handy, may be enough to scare off some former employees from pursuing bogus claims for deferred bonus payments.

Topics:  Bonuses, Employer Liability Issues, Hiring & Firing, Termination, Wage and Hour

Published In: Civil Procedure Updates, Finance & Banking Updates, Labor & Employment Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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