When a business adopts a company-wide bonus plan and gives itself discretion to administer it, can an executive bring a breach of contract claim challenging the exercise of that discretion? According to the U.S. Court of Appeals for the First Circuit’s decision last week in Weiss v. DHL Express, Inc., the answer is no.
Jeremy Weiss was a director of national accounts for DHL. In 2007, DHL told Weiss that it had selected him to participate in its “Commitment to Success Bonus Plan.” Under the plan, Weiss would receive a $60,000 bonus if he stayed with the company through 2009, and another $20,000 bonus if the company met its objectives in that year. There was a catch, however: the plan documents gave DHL’s Employment Benefits Committee the “full power and discretionary authority” to administer the plan, and its decisions would be “final and binding” on the participants.
In October 2008, DHL amended the plan, making all $80,000 of the bonus contingent on Weiss’s continued employment, with an installment of $20,000 in January 2009 and the remainder in January 2010. If Weiss was terminated “without cause,” he would still get the money; if terminated for “good cause,” he would not receive it. DHL paid Weiss the first $20k – however, when it terminated him in September 2009, it refused to pay the remaining $60,000, saying that he had been terminated for “good cause” as the result of failing to supervise his subordinates’ billing practices.
Weiss sued for the rest of the money, and the case proceeded to trial on his breach of contract claim.
The trial court allowed the jury to decide whether Weiss had in fact been terminated for “good cause”; the jury’s answer was that he had not, and that he was entitled to the $60,000. DHL appealed, however, and on June 4, the First Circuit reversed the verdict. It held that under the bonus plan, “whether Weiss was terminated without good cause and thus remained eligible for the bonus was a decision within the ambit of the Committee’s sole and final decision-making authority.” Because the Committee had “delegated to management its authority to determine whether good cause existed” for Weiss’s termination, and management undisputedly determined that there was good cause, Weiss was ineligible for the bonus as a matter of law. Therefore, the jury’s verdict could not stand.
The Weiss decision includes important lessons for employers and executives. For employers, it shows the importance of following procedures in discretionary plans. If the Committee had ignored its responsibilities and played no role in Weiss’s termination, Weiss would have had an easier time challenging whether DHL could rely on the discretion allowed by its bonus plan. For an executive, the decision indicates that when a company-wide plan is discretionary on its face, she may have difficulty enforcing a claim for breach of contract based on that plan. Instead, if the executive wants to be assured of a bonus, she will have more success with a more detailed individual contract that includes specified requirements for when a bonus must be awarded and when it can be denied.