Obligation to pay $350,000 performance bonus to non-performing employee

Obligation to pay $350,000 performance bonus to non-performing employee

The decision of the District Court of New York in In re Lehman Brothers Holdings Inc., 2015 WL 247403 (S.D.N.Y. Jan. 20, 2015) acts as a lesson to companies to look in to drafting of employment related letters more seriously. The court in reaching a decision relied heavily on the reading of the offer letter in question in this case.

Plaintiff Mary Annette Ortegón, was given an offer to join the company Lehman Brothers Holdings Inc. (LBI) on January 18, 2007. The offer letter gave details about the compensation and a performance bonus of $350,000 for the year 2007. It further set forth the criterions based on which the Plaintiff would be entitled for the performance bonus or be disqualified from it. However, it did not address the issue which finally became the point of dispute in this case.

The company rescinded the employment offer just prior to the joining date of the plaintiff. Plaintiff claimed that LBI breached her contract by failing to pay her a bonus. She asserted that LBI could not unilaterally terminate its responsibility to pay her a $350,000 bonus by unilaterally terminating her employment contract prior to performance.

The court after close scrutiny of the language of the offer letter reached the decision not to obligate LBI to pay performance bonus to the Plaintiff when she had not worked for a single minute in the company.

The offer letter provided:

“The foregoing salary will be paid for all periods of your active employment with the Firm in performance year 2007. The bonus amount set forth above will be paid at the time and in the amount stated except that it will not be payable if you have failed to obtain and/or maintain in good standing all applicable licenses and registrations or if, before the date of scheduled payment, you have resigned or have been terminated from the Firm because of misconduct, breach of Firm policies or rules, dishonesty, violation of laws or regulations, or substantial and continuing failure to perform employment duties or obligations satisfactorily. The bonus amount set forth above may be reduced in the event of an approved leave of absence during the applicable performance year.”

The court opined that the language does not undermine the clear meaning of the text, which is that the bonus was compensation for work performed and not a signing bonus payable as long as Ortegón made it far enough along in the human resources process to be deemed an “employee.” It further held that the final sentence, tying the bonus to the amount of time that Ortegón actually worked for LBI in a given year, further underscores the compensatory nature of the bonus; the bonus could be reduced to reflect the amount of time that Ortegón actually worked for LBI, which in this case was zero.