The Georgia Court of Appeals issued two decisions on March 2, 2016 that strengthen employees’ rights under employment contracts. The first case considers the rights of an employee who resigned after raising concerns that his employer had made material misrepresentations about the firm during the recruitment process. The second case addresses the validity of an employee's claim to an unpaid bonus which was promised mid-term rather than at the onset of employment.
In HA&W Fin. Advisors, LLC v. Johnson, 336 Ga. App. 647, 782 S.E.2d 855 (2016), the employer—a financial advisory firm—and Allen Johnson entered an employment contract for Johnson’s services as a financial advisor. Soon after beginning his employment, Johnson became dissatisfied with the management at the firm, and believed that misrepresentations had been made to him during the recruitment process. Johnson voiced his concerns repeatedly to his employer, to no avail, and eventually resigned.
The employer sued Johnson for breach of the employment agreement under various theories. Johnson denied liability, raised affirmative defenses, and counterclaimed for the employer’s breach of the employment agreement. The employer contended that Johnson had ratified the employment agreement and therefore had waived such defenses. More specifically, the employer argued that, because Johnson became aware of the alleged misrepresentation of facts made during recruitment, but continued to work for the firm despite that knowledge, he affirmed the validity of the employment contract.
The Court of Appeals disagreed. As the Court explained, the basic rule is that when a contract is continued in spite of a known excuse to performance, the defense of such excuse is lost. This is a waiver. However, waiver must be shown through an intentional relinquishment of a known right. The jury did not find such a waiver in Johnson’s case, and neither did the Court of Appeals. Instead, the fact that Johnson had repeatedly voiced his concerns about the misrepresentations made to him about the firm’s operations was sufficient to authorize the jury’s findings.
In Mosaic Bus. Advisory Servs. v. Stone, 336 Ga. App. 28, 784 S.E.2d 426 (2016), Lee Ann Stone sued her employer for failure to pay her an unpaid mid-year bonus. Stone was a co-founder of a consulting company with a colleague who was the sole shareholder of the endeavor, and thus, served as Stone’s employer. In the second year of its operation, the consulting company was profitable and Stone, who had originated most of the business, was due to be paid a fixed bonus established by the parties.
Subsequently, when cash on hand was limited, the two disagreed as to the amount of the bonus to be paid. The employer terminated Stone, then apologized and reinstated her, continuing discussions about bonus payments. The discussion about the bonus payments continued for approximately three more months while Stone worked for the consulting company. Soon thereafter, the employer informed Stone he wished to unwind the business and terminated Stone. Stone sought payment of the remaining bonus that she believed the parties had agreed upon, and eventually filed suit to recover those monies.
The employer contended that it was not obligated to pay Stone the mid-year bonus because the promise to pay the bonus was not made at the onset of Stone’s employment; thus, it was “mere gratuity.”
The Court of Appeals disagreed. The Court explained the general rule, which is that when an employment contract is for a fixed amount of money, any promise to pay an amount in excess, without new consideration (something given in exchange), is only enforceable if the promise is made at the beginning of employment. Otherwise, such a promise is unenforceable as a gratuity.
According to the Court of Appeals, however, in Stone’s case, the compensation at issue was negotiated throughout the time when Stone had been terminated and then reinstated for the purpose of negotiating the terms of her compensation. These conditions authorized the jury to find sufficient consideration for an enforceable bonus agreement.
Both the Johnson and Stone cases involved the employer’s appeal from a jury verdict favoring the employee. Is important to note that, upon review, the appellate courts view the evidence in the light most favorable to the verdict.
The Johnson case illustrates the importance of employees raising their concerns about employment terms and conditions, and contractual discrepancies, as soon as they become aware of problems—as well as the importance of fully documenting all their efforts to remedy such problems. Remaining silent about a perceived problem with an employment contract or an employer’s misrepresentation is likely to result in a finding of a waiver.
The Stone case illustrates the importance of employees obtaining clarity about their terms of compensation, including bonuses, at the beginning of the term of employment, as any promises made mid-term are likely unenforceable. However, as the case also illustrates, if employment ends and then is re-negotiated, the employee is in a position to renegotiate all terms, including bonuses.
If you are an employee under an employment contract and in doubt as to whether your employer is honoring the agreement or has made some material misrepresentations, or if you have a question or concern about your bonuses and other forms of compensation, contact an employment law attorney to discuss the facts of your particular situation.