Oral agreements concerning compensation and bonus payments can be enforced in court, and that can lead to tricky “who said what” legal problems.
Those are problems you can easily prevent with the help of good legal counsel. Ask your attorney to draft handbook language that expressly disavows any oral compensation agreements.
Recent case: Paul Bottum worked as a hedge fund manager and earned wildly fluctuating pay that was based on fund performance and several oral compensation agreements. One of those agreements involved a promise by the company to pay Bottum a $1 million bonus if the hedge fund he managed outperformed the S&P 500 for the year.
Bottum hit the performance target but received only $175,000. He claimed promised to pay the additional amount after the owner’s divorce was finalized. When he didn’t get the rest of the money, he sued, alleging breach of contract.
The Court of Appeals of Minnesota said Bottum might have a case, depending on the testimony at trial. It said he should have a chance to prove that the company owed the additional money despite the lack of a written agreement. (Bottum v. Jundt, et al., No. A07-2200, Court of Appeals of Minnesota, 2008)
Final note: Bonus agreements are not do-it-yourself projects. By using a written agreement, all the parties know the terms and what to expect. You can avoid alleged oral contracts by specifically banning them. That prevents a rogue manager from making promises the company can’t keep.
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