The Bonus Claim
The client had worked for the company for about five years. He resigned in January 2021 to take a job with another company. Once at the other company, he talked with the General Counsel of that company and told him that his prior employer had refused to pay his bonus for 2020 claiming the company had no obligation to do so because the employee had voluntarily resigned, the bonus plan was discretionary, and it provided that a person had to be employed at the time the bonus was paid in order to be eligible. The General Counsel called my colleague who called me and asked if I would take a look at the issue. I did and decided to represent the client. I was told the bonus should have been about $50,000 and that bonuses had been paid, historically, in December as the company was on an October 1 fiscal year.
Pre-Litigation Settlement Efforts
After reviewing the facts, I thought this would be a pretty easy case to resolve. The company was a large company whose General Counsel had practiced at a top law firm. The client had received a bonus in each year of his employment. The bonus had always been accompanied by a letter from the CEO. The most recent bonus letter described the formula on which the bonus was based.
The client told me his bonus was not paid in December because of an ongoing internal investigation. The CFO told the client his bonus would be delayed until the investigation was completed, although the company would not provide him any estimate of when that was expected to happen. The CFO also told the client he was not paid his bonus at the same time as virtually all other bonus-eligible employees, as the company did not want to allow bonuses for people involved in an internal investigation while such investigation was ongoing. Subsequently, the CFO said the client would not be paid his bonus because he had to be employed with the company “when the bonus is paid out in order to receive it.”
As I pointed out, if the investigation took five years to complete, the client would have had to remain employed with the company for 5 years in order to be paid the bonus he earned for 2020. I asserted that the company’s position “defies basic common sense, fairness and most important for our purposes, California law.”
The company referred the case to outside counsel who requested more time to evaluate the case, which I naturally granted. About a month after I first contacted the company I heard from outside counsel, who told me the company was not going to pay the bonus because not only had the client left the company, but also that he had failed to disclose what he knew about the internal issue being investigated, an issue for which he was responsible.
As it turns out and, as the company knew at the time, the client was the person who brought the issue forward in the first place and disclosed the issue that lead to the investigation and eventually, to a large settlement with a government entity. In other words, what had started out as a simple failure to pay a bonus had become a whistleblower case.
After going back and forth with outside counsel, I finally made a settlement demand of $75,000 with indications that the client would settle for the amount of the bonus plus a “kicker” to cover my fee. The company did not offer a penny. Then, I suggested mediation. The company declined. So I filed a demand for arbitration asserting claims based on the failure to pay the bonus, but also CCP 1102.5 and a defamation claim.
I won’t bore anyone whose has taken the time to read this far with all the gory details of the arbitration process. Shortly before Christmas (about a month ago), a year after the client’s bonus should have been paid, the company settled for about $200,000. Thus, it’s likely the company spent close to half a million dollars on a claim it could have settled for less than $50,000.
Moral of the story. Make a realistic evaluation of your case. Don’t throw good money after bad. A mediator might have helped the company lawyers take a more objective view of the case early on. One of the problems in the case is that the lawyer who was responsible for determining whether the case settled early was involved in some of the initial advice. It is always harder to settle a case directly with one of the decision makers because that person has to eventually concede, at least to him/herself, that the initial advice might have been problematic from the start.