Late Limit on Bonus Plan Has No Effect

By Bill Wright

The 8th Circuit Court of Appeals recently offered a refresher course on contract formation, as applied to employee bonus plans. The employer promised substantial bonuses, payable in five years, provided the eligible at-will managers were still employed. A couple of years later, the employer saw that the bonuses were going to be too expensive and announced a $100,000 cap on the bonuses. The managers said nothing, until the time for payment arrived; then, they sought full payment of the promised bonus.

Interpreting Missouri law, the court ruled that the managers had accepted the offer of the bonus through the required performance – they kept working. They had no obligation to tell the employer that they did not accept the later caps on the bonus, and the employer didn’t give the managers anything more than continued employment in exchange for the cap. Consequently, the bonus plan was not modified when the employer rolled out the cap. The employer was liable for the entire five year bonus, despite the expense. Boswell et al. v. Panera Bread Co., No. 16-3230 (8th Cir. January 5, 2018).

Remember that contract formation is covered by state law, so the result here could vary state-by-state, but employers can’t always just announce a change to a bonus plan and make it stick.