‘Compensation agreement’ did not modify exec’s at-will status
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Friday, June 8, 2018

‘Compensation agreement’ did not modify exec’s at-will status

By Robert Margolis, J.D.

A “Compensation Agreement” that outlined a salary and bonus structure until company sales reached $150 million did not modify the status of a power supply product manufacturer’s Executive Vice President from that of an at-will employee, the Eighth Circuit held. It affirmed the summary judgment dismissal of the EVP’s breach of contract, fraud, and unpaid wages claims arising out of his termination. One judge dissented (Ayala v. CyberPower Systems (USA), Inc., June 6, 2018, Gruender, R.).

‘Compensation agreement.’ The EVP was initially hired as a vice president in 2006 as an at-will employee. In 2012, he drafted an agreement, titled “Compensation Agreement,” to govern his “compensation plan” for his new EVP position. That agreement stated: “The above-mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached. It is not a multiyear commitment or employment contract for either party.” The EVP was terminated before sales reached $150 million, however, and he sued his former employer in federal district court for breaching the agreement, which he contended secured his employment until that $150 million sales threshold was attained.

Agreement not ambiguous. After the employer’s motion to dismiss was denied, a new judge granted the employer summary judgment, agreeing with the employer that the agreement was not ambiguous and did not modify the EVP’s status as an at-will employee. Consequently, the employer could terminate the EVP without breaching the agreement. The EVP appealed, but the Eighth Circuit also agreed that the agreement unambiguously did not modify the EVP’s at-will status.

Overcoming at-will presumption. Minnesota law provides a “strong presumption” of at-will employment, so for the agreement to overcome that presumption, it had to use “clear” language changing the EVP’s status, according to the appellate court. The agreement, however, governed only compensation, not the duration of employment. The appellate court highlighted the title of the agreement, “Compensation Agreement,” as well as the fact that it purported to describe the EVP’s “compensation plan,” and by its terms it was not a “multiyear commitment.”

The EVP argued that if the agreement were construed to mean “multiyear” modified “employment contract” in addition to “commitment,” then it could be read as ending the employment term on a condition, rather than after a term of years, but nonetheless could be construed to provide a term. The Eighth Circuit rejected this argument, reasoning that reading “makes little sense” given the context of the agreement’s title and expressions that it governs compensation, not the employment term. Because the agreement did not contain the requisite “clear” language to overcome the strong presumption of at-will status, the district court correctly granted summary judgment dismissing the EVP’s claims.

The Eight Circuit also rejected the EVP’s argument, with which the dissenting judge agreed, that the agreement’s failure to explicitly state that the relationship remained at-will required a different outcome. Minnesota law requires no clear statement to continue an at-will relationship because such a relationship is presumed, the majority noted.

Unpaid wages. The EVP also brought a claim for unpaid wages under Minn. Stat. § 181.13. He conceded, however, that affirming the dismissal of his breach of contract claim would be fatal to his statutory wage claim. Accordingly, after affirming dismissal of the contract claim, the appellate court reached the same result as to the wage claim.

Dissent. Judge Beam, dissenting, pointed out that in previous contracts between the parties, the at-will language was expressly included, but in this new agreement, at-will status was not mentioned. Additionally, the 2007 agreement (preceding this one) allowed abrogation of at-will status by company vice presidents. To the dissent, the better argument is that had the parties contemplated an at-will status in the new employment contract, the contract would have specifically said so, resulting in an ambiguity that would require a fact finder to resolve.

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