Recent Court of Appeals Decision Underscores the Importance of Written Employment Offers

August 24, 2012

By: Thomas G. Eron

A recent decision by New York’s highest court highlights the value to employers of initially setting forth the terms of employment in a written offer letter.  In Ryan v. Kellogg Partners Institutional Services, the New York Court of Appeals upheld an award of $380,000 for an unpaid wage claim and attorneys’ fees, principally because the jury believed the plaintiff’s testimony that he was promised a $175,000 bonus by the defendant’s managing partner, and notwithstanding the managing partner’s testimony that he made no such promise.

Neither the employer’s employment-at-will policy and disclaimers, nor the Statute of Frauds provided a defense to the claim, but a properly drafted employment offer letter, which was missing here, would have made all the difference in the result.

The plaintiff testified that he was recruited to work for the defendant, which at the time was a fledgling securities brokerage firm.  He testified that he sought an annual salary of $350,000 to change jobs, and, to meet his demand, the managing partner offered him compensation consisting of a salary of $175,000 and a guaranteed bonus of $175,000 payable within the first year of his employment.  After accepting the position, but before starting, plaintiff completed an employment application with an employment-at-will acknowledgment.  He also signed off on the employer’s handbook that confirmed his “at will” status, and specifically provided that:

[no] representative of the company . . . has the authority to enter into any agreement for employment for any specified period of time or to make any agreement contrary to [the employee’s at-will status].  [N]othing contained in the handbook may be construed as creating a promise of future benefits or a binding contract with [the employer] for benefits or any other purpose.

The new business started slowly and, according to the plaintiff, within the first year, the managing partner asked him to postpone the bonus for a year.  Plaintiff claimed to reluctantly agree.  There was, apparently, no documentation of this discussion or agreement.  The plaintiff also testified that he discussed the bonus “many times” with the managing partner who, according to the plaintiff, “put him off.”  Ultimately, plaintiff was offered a $20,000 bonus, which he refused to accept, and subsequently was terminated.

At trial, the managing partner contradicted the plaintiff’s testimony in “every conceivable way” on the topic of bonuses.  He told the jury that the subject of a $175,000 bonus was never discussed before or after plaintiff was hired, and that bonuses were entirely discretionary.

The jury credited the plaintiff’s testimony and awarded the $175,000 bonus.  The court found the failure to pay the bonus to be a violation of the wage payment provisions of the New York Labor Law and awarded attorneys’ fees of $205,000.

The Court of Appeals affirmed in all respects.  In particular, the Court reasoned that the employment-at-will policy and acknowledgments did not provide a defense to this claim because, while the employment-at-will policy established that the plaintiff was not guaranteed employment for any period of time, and that his employment, compensation, and benefits were subject to termination, that policy did not establish that bonuses were discretionary, or that the plaintiff was not entitled to payment of compensation that he claimed was promised at the outset of his employment.  According to the Court, the at-will disclaimers did not preclude an employee from recovering remuneration earned before his employment ended.  It was for the jury to decide what agreement the parties had reached on the plaintiff’s bonus compensation.

The Statute of Frauds (New York General Obligations Law §§ 5-701 et seq.), which limits the enforceability of oral contracts by requiring a writing in certain enumerated circumstances, was not a defense here because there was adequate consideration for the alleged promise, and the bonus was scheduled to be paid within one year.

The Court of Appeals also approved the award of attorneys’ fees to the plaintiff on the theory that the failure to pay the bonus constituted a failure to pay wages under New York Labor Law.  The Court noted that, subsequent to trial, the relevant Labor Law provision, Section 198(1-a), had been amended to increase the potential recovery to include liquidated damages of 100% of the wages found due (i.e., double damages plus attorneys’ fees).

The facts in Ryan v. Kellogg Partners illustrate the significant risk that employers take in not confirming the terms of employment through a written offer letter.  Such an offer letter can incorporate at-will employment principles before the employee accepts a position.  In addition, important terms of employment, including salary, benefits, bonus and incentive opportunities, can be clearly identified and not left to the vagaries of jury deliberations.  The warning of Ryan v. Kellogg Partners is that substantial jury verdicts can rest on the testimony of a former employee.  Employers who heed that warning will have thorough employment documentation -- beginning with a well-crafted offer of employment.