By:  John F. Fullerton III

The New York Court of Appeals recently upheld a jury verdict in favor of a brokerage firm employee who claimed that his employer breached an oral promise (and violated New York wage law) when it failed to pay him a guaranteed bonus of $175,000, to be paid at the end of his first year of employment.  The discussions with the hiring manager regarding compensation were not put in writing.  Nevertheless, the employee subsequently signed an acknowledgment in the formal employment application that  “compensation and benefits are at will and can be terminated, with or without cause or notice, at any time” at the discretion of the employer or the employee.  He was discharged after less than two years of employment, and had not been paid the full $175,000 he claimed to be owed.


After a jury found for the employee and the intermediate appellate court sustained the verdict in a 3-2 decision, the employer appealed to the top court.  To be clear, the employer denied having made any such oral promise, but the jury believed the employee, so the employer appealed as a matter of law based on, among other things, the at-will language in its employment application, arguing that all compensation, including bonuses, was discretionary.  The Court noted that the at-will language was silent as to bonuses, and unanimously held that the oral promise of a guaranteed bonus made at the outset of employment was contractually enforceable and had vested as wages.  Thus, while the employer maintained the right to change compensation going forward, its at-will language did not bar recovery on the breach of contract and wage law claims for compensation allegedly due and owing. The case is called Ryan v. Kellogg Partners Institutional Services (pdf) and is a worthwhile read, particularly for the way it distinguishes the New York case law employers routinely rely upon to support the position that discretionary bonuses do not constitute “wages.”

At first blush, it is difficult to believe that a sophisticated broker would fail to get a six-figure guaranteed bonus in writing, or that an employer would even make such an expensive promise without memorializing it.  But maybe it is not so unusual. As Bill Singer notes in his take on the case in his Street Sweeper blog for

Another odd thing about life on Wall Street. You got lots of high-powered, Type A personalities. Many of them don’t like lawyers . . . You talk to these wheelers, dealers, and traders and they tell you that on the Street, it’s all done by a handshake. Your word is your bond. . . .Which might explain why sometimes there isn’t a contract or written agreement.  After some 30 years in the biz, that cavalier attitude still surprises me.

On the other hand, isn’t that what written at-will disclaimers in the hiring documentation are for:  to make clear that any alleged oral promise of some “guaranteed” term or condition of employment – be it duration of employment or a specific bonus amount – cannot create a legally binding contract?  But here, the Court rejected the application of the employer’s fairly standard at-will language to a non-discretionary bonus allegedly promised at the time of hire. The takeaway from the case, then, seems to be:  either emphasize and re-emphasize to your business-side clients that they should reduce all aspects of every compensation agreement to writing; or, beef up the at-will language in your employment applications, offer letters, and employee handbook to make clear that any supposed oral agreements to pay non-discretionary compensation are superseded by the written documentation, and make sure it is signed by the employee.

One final note about the case that jumps right off the page:

Kellogg had to file a form U5 for Ryan after his termination from employment, meaning that he was registered with FINRA:  so what was this case doing in court, rather than in arbitration at FINRA?  It turns out that after Ryan filed his claims in court, Kellogg did not move promptly to compel arbitration.  Instead, an intermediate appeals court held, it “waived any right to arbitration by failing to raise it as a defense in its answer, asserting counterclaims, making a dispositive motion, and otherwise actively participating in this litigation for almost three years through the completion of extensive disclosure proceedings . . . all to the prejudice of plaintiff.”

Perhaps, despite the outcome, most employers would have felt that their chances in a case like this were better in court in any event.  But it does highlight the need for the employer to act quickly if it would prefer to arbitrate.  For a great discussion of the pros and cons of deciding whether to compel arbitration, see the piece Dena Narbaitz has posted here.

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