In Bukuras v. Mueller Group, LLC, the First Circuit held that an employee did not breach the general release provision of his severance agreement by initiating a good faith challenge to the employer’s interpretation of its obligations under that severance agreement.
In 2003, George Bukuras entered into an employment contract with Mueller Group, LLC. Pursuant to the terms of that agreement, Bukuras was entitled to an annual bonus based on the company’s performance. In addition, in the event the employer terminated his employment, Bukuras would receive a severance payment that would include 150 percent of the “bonus paid or payable” for the fiscal year immediately preceding the fiscal year in which his termination occurred.
In 2005, Mueller entered into a merger agreement with another entity. The merger became final at the beginning of the 2006 fiscal year. Bukuras received a significant transaction bonus for his efforts in completing the deal. Shortly thereafter, the company terminated Bukuras’s employment without cause. As a condition of receiving his severance payment, Bukuras signed a broad, general release of all claims against the company.
In May 2006, Bukuras received his severance payment, which was calculated using the amount of his 2005 annual bonus, but not the transaction bonus he received as a result of the merger. Bukuras filed suit for breach of contract in District Court, and Mueller counterclaimed, asserting that Bukuras breached the release he signed by suing the company. The District Court granted the parties’ cross-motions for summary judgment and dismissed both claims.
The First Circuit affirmed, holding that the transaction bonus was not payable in the fiscal year preceding the year of Bukuras’s termination, as defined in the severance provision of the employment agreement. Moreover, based on the context in which the term was used, the Court found that the parties had intended the provision to refer only to Bukuras’s regular annual bonus.
With regard to Mueller’s counterclaim, the First Circuit held that Bukuras’s breach of contract claim relating to his severance payment fell outside of the provisions of the release he had executed because the “precise amount of the severance payment had not been liquidated at the time the release was executed.” Mueller’s interpretation of the provision thus would have deprived Bukuras of any recourse had the company failed to pay him as specified in the agreement. The Court also found that while a release may serve as an affirmative defense, it does not supply a defendant with an independent claim for breach of contract. The Court further reasoned that the damages Mueller sought—attorneys’ fees and costs—could not be obtained in the absence of an agreement or statute specifically permitting such fee shifting.
This case demonstrates that release provisions in severance agreements may not be used offensively, but rather provide a defense to claims covered by the release. In addition, such provisions may not be used to prevent an employee from challenging a breach of the severance agreement itself.