News

Breaking The Golden Handcuffs

breaking the golden handcuffs

Breaking the Golden Handcuffs

The Fifth Circuit recently issued a groundbreaking opinion, though there has been little fanfare or discussion about it. But for employees pursing certain kinds of contractual claims, this case will be a game-changer.

We often see contracts with “golden handcuffs” terms. These terms arise in commission plans, bonus agreements, or other kinds of employee incentive agreements.

Generally, the terms require that you be an active employee on the date that the incentive payment is to be paid to receive it. If you are not employed on the date specified, you get nothing.

For example, if a company used the 2018 calendar year as its fiscal year, its bonus plan may give you a 20% bonus for your 2018 work, but it won’t be paid to you until March 15, 2019. Often, we see  employees get fired before March 15, 2019 and get no bonus for their hard work in 2018.

A similar situation can arise if you are a commissioned sales employee who makes a big sale and will get your commission after the company gets paid by the customer. Yet you get fired the week before the customer’s payment is due for no reason.

In both cases, if you are an employee at will, your company may fire you. But can the company now avoid payment of your bonus or commission?

In Sellers v. Mineral Technologies, Inc., 2018 WL 6266528 (5th Cir. 2018), the Fifth Circuit gave plaintiffs’ lawyers some great ammunition to tackle these situations.

In this case, an agreement required Sellers to be employed on January 18, 2015 to receive long-term incentive payments. The parties were fighting about whether Sellers was still employed on that date. The factual circumstances were unique because Sellers had been let go, but still was receiving 30 days’ notice pay as of January 18, 2015. The Fifth Circuit found that Sellers met the contractual condition precedent to receiving payment.

But, the Fifth Circuit went further and found that the condition precedent of required employment on January 15, 2015 was either fulfilled or excused even if Sellers had not been receiving the notice pay. As the Court stated:

Even if the condition precedent was not technically met here, however, we find it appropriate under the circumstances of this case to deem the condition fulfilled or excuse its fulfillment. Under Texas jurisprudence, if one party prevents another from performing a condition precedent or renders its fulfillment impossible, then the condition may be considered fulfilled.

This simple language may have far-reaching effects. Because most Texas employees are employed at will, they can be terminated at any time and for any reason. But their employers arguably cannot deprive them of bonuses or incentive pay owed just because they got fired before the date specified in the contract for payment.

As a lawyer for employees, we now have  good arguments that if you did the work required to earn a bonus or commission, you should no longer lose it just because you got fired before the payment is due. When your employer makes it impossible for you to be employed on the date required to receive it, you still should get the payment. Expect to see a lot of these cases in 2019.