Panera breached its comp plan by capping incentive pay for class of general managers
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Wednesday, March 30, 2016

Panera breached its comp plan by capping incentive pay for class of general managers

By Lorene D. Park, J.D. Granting summary judgment for a class of Panera Bread general managers, a federal district court in Missouri concluded that Panera’s compensation plan was a unilateral contract that was accepted by the general managers’ performance; that Panera’s attempt to cap bonus payments after the fact was ineffective; and that Panera LLC breached the agreement by not paying the full amount due under the formula in the agreement (Panera Bread Co. was not a signatory so the claim against it failed). All defendants won summary judgment on the managers’ fraud claim, which was unsupported by evidence (Boswell v. Panera Bread Co., March 24, 2016, Fleissig, A.). The named plaintiffs and a class of 67 individuals worked as Joint Venture General Managers (JVGMs) for Panera Bread, which created the JVGM program to recruit and retain café general managers. JVGMs were at-will employees responsible for all aspects of their respective cafes and were ultimately accountable for the profit, sales, and costs in their cafes. Compensation plan. Under the program, JVGMs received a base salary, monthly bonuses, and a long-term incentive bonus known as a “buyout payment.” In 2007, Panera started offering a standard JVGM employment agreement that expressly referenced this compensation plan, and all class members entered this agreement. Panera agreed to pay JVGMs, at the end of five years, a one-time buyout payment, the amount of which was determined with a formula set forth in the compensation plan. The formula turned on the profitability of a particular JVGM’s café during the last two years of a five-year period. The compensation plan also stated that it was the “complete and exclusive agreement” as to “any bonus, incentive plan or other compensation, except as specifically set forth in [the JVGM’s] Employment Agreement with Panera” and that no modification or waiver would be valid unless in writing and signed by the party against whom it was to be enforced. Panera caps buyout payments. In 2010, Panera decided to impose a $100,000 cap on buyout payments. When JVGMs were notified of the cap in 2011, the presentation indicated the change was the result of them making “in access of what the program intended.” However, at least one corporate representative testified that there was no particular size of a buyout that Panera would have refused to pay before the cap was put in place. Starting in 2012, each class member received a capped buyout payment and raised no objections until 2014. Thereafter, the plaintiffs filed this suit alleging a classwide breach of contract claim, among other claims. Compensation plan was unilateral contract. The court granted summary judgment for the plaintiffs on the classwide breach of contract claim against Panera, LLC (not Panera Bread, Co., which was not a party to the agreements). It held that, under Missouri law: “Panera’s promise to pay a buyout according to the terms of the Compensation Plan in return for the class members’ continued at-will employment according to the same terms was an offer for a unilateral contract,” which would become enforceable when accepted by performance. Here, the performance invited was set forth in the plan, “and required only that ‘as of the date on which the [buyout] payment is made,’ the class members still (i) be an employee of Panera, (ii) be performing the duties of the position currently entitled JVGM, and (iii) not be in breach of any provision of the Agreement or any other obligation owed to Panera.” Acceptance by performance. It was undisputed that all the class members performed under the compensation plan for at least one year by the time the buyout cap was announced, and many performed much longer. In the court’s view, working for one year as JVGMs before the buyout cap was announced constituted “substantial performance as a matter of law” and so the buyout offer was “irrevocable.” Accordingly, under Missouri law, Panera’s attempt to modify the compensation plan’s buyout offer in the first quarter of 2011 was ineffective. The court further noted that, even if it deemed the compensation plan to be a bilateral contract, Panera’s attempt to novate the plan was ineffective because the attempted novation was not supported by consideration, or a promise to do something more than Panera was already legally obligated to do. Indeed, it merely offered to continue to employ the JVGMs at will, under the same terms it did previously, but for a smaller buyout payment. Panera breached. Because the compensation plan’s buyout offer was irrevocable by the time Panera tried to change it, the plaintiffs were entitled to a buyout payment under the terms of the plan, provided that they completed performance. Panera did not dispute that 64 of the class members provided full performance and, as to the remaining three, the court found that Panera’s conduct in paying the buyout payments (even though it paid only the capped amount) implied acceptance of the class members’ acts as full performance as a matter of law. Affirmative defenses fail. The plaintiffs also won summary judgment on Panera’s affirmative defenses. Panera argued that the plaintiffs waived or were estopped from asserting breach of contract claims because they continued working without objection after it announced the buyout cap, but the court disagreed. Under black letter law, because Panera’s performance under the compensation plan was not yet due when it announced the cap, the plaintiffs were permitted to complete their performance under the buyout offer, wait for Panera’s performance, and then hold Panera responsible for any deficiencies. Also, because the change in business conditions that Panera claimed necessitated the cap was reasonably foreseeable, it did not excuse Panera’s performance under the commercial frustration doctrine.

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