The importance of detailed drafting of employment documents – particularly those calling for commissions, bonuses or other types of incentive compensation – was highlighted recently by a plaintiff’s claim that, as a conditional hire who never worked a day at now-defunct Lehman Brothers, the Bank’s rescinding of her employment offer triggered its obligation to pay her a $350,000 annual performance bonus. In re Lehman Bros. Holdings, 2015 U.S. Dist. LEXIS 6195 (S.D.N.Y. Jan. 20, 2015).
Plaintiff’s claim hinged on her January 12, 2007 offer letter which anticipated that she would begin employment on January 18 of that year. It set forth criteria for her to receive or be disqualified from receiving the bonus, but did not address the scenario which ultimately occurred: the rescission of her offer of employment on January 18 (the basis for which the parties disputed).
Plaintiff claimed that the Bank “could not unilaterally terminate its responsibility to pay her a $350,000 bonus by unilaterally terminating her employment contract prior to performance.” The Court determined that her claim hinged “entirely on the nature of the bonus—if it was discretionary, compensatory or contingent on Ortegón’s remaining an LBI employee throughout the bonus period, then LBI was within its right of not paying her the bonus.” Citing Truelove v. Ne. Capital & Advisory, Inc., 95 N.Y.2d 220 (2000). Because the court could identify no language in the offer letter suggesting that the bonus was a sign-on bonus, as opposed to a bonus that would be paid to her for work performed under the terms set forth in the offer letter, the court ruled that she had not earned the bonus and that the bankruptcy court correctly granted summary judgment to Lehman Brothers.
Ms. Ortegón’s claim highlights the importance of clearly-identifying all criteria for earning incentive compensation.