Thursday, January 18, 2018

Employer Beware: Your Current Bonus Program May Be Irrevocable

Last week, in Boswell v. Panera Bread Co., the Eighth Circuit Court of Appeals held that Panera Bread illegally imposed caps on amounts paid to managers under its bonus program. In order to recruit and retain managers, Panera had created a program under which managers were eligible to receive a one-time bonus to be paid five years after the managers signed at-will employment agreements containing the bonus program. In order to receive the bonus, the manager had to be employed as a manager at the time of payment.

However, after a downturn in profits, Panera decided to place a $100,000 cap on the manager retention bonus. Managers were notified of the cap in 2011 and informed that the cap would become effective in 2012. Plaintiff, Mark Boswell, sued Panera in 2014 on behalf of himself and a class of similarly situated managers. Boswell argued that Panera’s unilateral bonus cap was a breach of contract. Panera disagreed, maintaining that its 2011 notice of the cap constituted a new oral contract with the managers that they accepted by continuing employment. Panera also argued that the managers waived any potential contract claim by continuing to work for Panera with notice of the program change and that the managers were estopped from raising any claims due to the passage of time since 2011.

Last week’s ruling by the Eighth Circuit affirmed the lower court’s grant of summary judgment to the plaintiffs. In its ruling, the Eighth Circuit affirmed the lower court’s decision that the contract between Panera and the managers could not be unilaterally modified by Panera, because, by 2011, the managers had “rendered a substantial part of the requested performance by working at least a year after signing their agreements.” Citing Missouri law, the Eighth Circuit held that Panera’s unilateral modification of the original bonus program was not a mutual amendment to the original contract. The Eighth Circuit also held, based on an assumption about how the Missouri Supreme Court would rule, that the beginning of performance by the managers rendered Panera’s offer of the prior bonus program irrevocable, stating:
Since the managers had begun performing the unilateral-contract offer, Panera was not entitled to move the goalposts on them by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.
The Eighth Circuit rejected Panera’s argument that it reserved the power to modify or terminate the bonus program, finding no such clear language was present in the bonus program agreement.

The Boswell ruling is an important reminder to employers to use clear and concise language in employment and compensation agreements even when the employees involved are at-will. Had Panera’s bonus agreement included a clearly worded reservation of its right to modify or terminate the program, it likely would have prevailed in the Boswell case.

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