Employment agreements after Vander Veur
Employers should take note of the Utah Supreme Court’s decision last year in Vander Veur v. Groove Entertainment Technologies. While the Court protected at-will employment in Utah, employers may want to take a close look at their contracts to ensure they are clear and unambiguous on what an employee is entitled to receive if his or her employment is terminated before the employee earns a commission or a bonus, or before options vest. Employment contracts should include language that makes clear whether an employee has continuing rights to commissions, bonuses, and options even after termination.
At-will employment is a foundational theory in Utah law that permits either the employer or the employee to terminate employment for any reason (or no reason at all), except where prohibited by law. In other words, so long as an employer does not terminate an employee based on a discriminatory reason—in retaliation for protected activity, or some other protection under the law or contract–an employer can end employment at any time for any reason.
In Vander Veur, a terminated employee sought to challenge the bounds of at-will employment contending that his employer terminated him because it wanted to avoid paying him commissions for lucrative sales that were just about to close. According to Vander Veur’s legal theory, his employer sought to take advantage of its ability to terminate him as an at-will employee and reap the benefits of his sales efforts without having to fully compensate him. Vander Veur argued that the covenant of good faith and fair dealing (implied into every Utah contract) prevented the company from firing him to avoid paying him commissions because that action frustrated his reasonable expectation of receiving compensation for his efforts. While the lower court agreed with Vander Veur, the Utah Supreme Court found that the terms of his employment agreement made clear that he could be terminated without cause, even to avoid paying him a commission. The Court also found that the employment agreement defined a “qualifying sale,” and based on those express terms, Vander Veur had not earned the sales commissions before his employment was terminated. If the contract had not specified that employment was at-will, or it had been silent on when a commission was earned, the result could have been different. Silence or ambiguity in a contract on key terms leaves an employer open to allegations that the terminated employee had justified expectations of a commission or bonus even after termination. A recent decision by a Utah federal district court found that mere allegations of industry custom could be enough to sustain an employee’s claim where the contract omitted specific terms.
The main takeaway from the Vander Veur is that employment agreements should address whether and under what circumstances an employee has any continuing rights to commissions, bonuses, and options even after termination. Contracts should make clear that employees can be terminated at any time—without notice and without cause—even if the employee will soon close a big sale, earn a bonus, or achieve vesting of options or shares. It is also important to precisely define how and when commissions and bonuses are earned and specify that only if an employee satisfies those requirements before termination will he or she be entitled to receive them. If you have not had counsel audit your employment agreements recently, Vander Veur gives you a good reason to add it on your to-do list.
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