The world of big-money executive bonuses is one that most of us can only dream of, but it was the subject of a recent opinion by the Illinois Appellate Court. The First District held that under the Illinois Wage Payment and Collection Act, ABN Amro Inc. could not deny a former executive a $2-million bonus simply because he had no written compensation agreement. (Robert D. Schultze v. ABN Amro, Inc., 2017 IL App (1st) 162140)
Robert S. had held various executive positions with ABN subsidiary LaSalle Bank since 1983. He earned his salary and bonuses under an oral employment agreement. If Robert and his team met certain performance goals, he could expect to receive a multiple of his salary as a bonus.
In 2007, ABN promoted Robert to managing director and chief operating officer of Global Markets North America Division. He was then asked to manage the $21-billion sale of LaSalle to Bank of America and the $93-billion sale of ABN to Royal Bank of Scotland and two other banks, as executive lead of the ABN North America Transition Leadership Team.
Based on the bonuses paid to his predecessors in the COO job combined with his significant added responsibilities, he expected a bonus of $2-$5 million for 2008. When he learned in March 2009 that his 2008 bonus was only $200,000, he objected as the amount was not in proportion to the responsibilities he had assumed, and was much lower than his recent annual bonuses.
In April 2009, ABN terminated Robert and offered him $300,000 severance. Robert argued his severance should have been $375,000 based on his 25 years of service. ABN required him to sign a separation agreement waiving all claims. Robert refused to waive his claim related to his 2008 bonus, and consequently ABN withheld his severance.
Robert sued ABN for violating the Wage Payment and Collection Act, which allows employees to sue for the timely and complete payment of earned wages or final compensation. The trial court ordered ABN to pay $2 million as an earned bonus and $375,000 as severance, plus interest. On appeal, ABN argued that a discretionary bonus not pursuant to a contract is not recoverable under the Act and should not be awarded based on expectations and past practices, and Robert failed to execute a separation agreement and general waiver as a prerequisite to receiving any severance.
To recover under the Act, a plaintiff must show he was subject to an employment contract or agreement and was due “final compensation.” A formal contract is not required (Landers-Scelfo v. Corporate Office Systems, Inc., 356 Ill. App. 3d 1060 (2005)). A plaintiff must only show mutual assent to terms, which may be manifested by conduct alone, including past practice.
The appellate court found “ample evidence” demonstrating a long history of ABN’s manifestation of mutual assent, and an “unequivocal promise” to award Robert a performance-based bonus through its letter telling him he was entitled to a bonus in 2008. ABN’s past conduct of awarding Robert an annual bonus for more than two decades manifested an agreement to award a bonus as part of his total compensation. Consequently, he was entitled to a bonus whose payment was not discretionary.
The court cited the fact that Robert’s predecessors received bonuses of over $2 million for the same position, in addition to his “substantial” responsibilities associated with the transition.
ABN’s failure to follow the process it assured him would be used to determine his bonus violated the Act. “Not only did [ABN] change the longstanding methodology used to calculate bonuses,” the court wrote, “but [it] also did not communicate the change to Robert before [he] fully performed his employment responsibilities to earn his bonus for 2008. ABN cannot … alter his compensation by awarding him a drastically reduced bonus.”
Nor could ABN argue that Robert should not receive his bonus because 2008 was a disastrous year for the financial industry, because profitability had not been his performance goal, but rather reduction of risk and preservation of assets.
The court rejected the idea that its ruling would open the floodgates to claims by employees dissatisfied with a bonus. “Robert’s circumstances were unique and the multiple positions ABN asked him to fill are not likely to recur.”
Because ABN improperly conditioned payment of severance on Robert’s waiver of his right to challenge his 2008 bonus, the trial court did not err in awarding $375,000 as severance.
Our Chicago employment, wage collection and non-compete agreement attorneys have won large verdicts in arbitrations and court cases for executives claiming unpaid bonuses, salary and other compensation. We have also defended high level executives in covenant not to compete and trade secret lawsuits. A case in which our firm defended a former Motorola executive was covered in Crain’s Chicago business. You can view that article by clicking here.
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