Finding Employer’s Disclaimers Inadequate, New York High Court Rules For Employee Alleging Oral Bonus Promise

By: William R. Horwitz

The New York State Court of Appeals recently issued a decision highlighting the importance of including clear disclaimers in employee handbooks.  In Ryan v. Kellogg Partners Institutional Services, Plaintiff Daniel Ryan left an established securities firm to go to work for Defendant Kellogg Partners, a startup venture.  According to Ryan, Kellogg lured him with the oral promise of a $175,000 bonus.  When Kellogg failed to pay the bonus and then terminated his employment, Ryan filed a lawsuit asserting claims for failure to pay wages in violation of New York State Labor Law §§ 190-198 and breach of contract.

At trial, the jury returned a verdict in favor of Ryan.  With interest, attorneys’ fees and costs, the judgment totaled $379,956.65.  The Appellate Division, First Department, affirmed.

On appeal, Kellogg argued that statements in its employment application and employee handbook negated “Ryan’s alleged expectation of or entitlement to a guaranteed or non-discretionary bonus.”  The Court observed that the “Acknowledgments” section of the employment application merely confirmed that, if hired, Ryan would be employed on an at-will basis.  According to the Court, the at-will language was irrelevant because Ryan was not asserting an “alleged right to continued employment, compensation or benefits.”

The signed “Receipt” section of the employee handbook indicated that the handbook did not create “a promise of future benefits or a binding contract … for benefits or any other purpose.”  The Court explained that this language did not undermine Ryan’s claims, because the “handbook [did] not say that oral compensation agreements are unenforceable, or mention bonuses at all.”  Thus, the Court observed, “there are no statements in the handbook that bar Ryan’s recovery on his breach-of-contract and Labor Law claims for compensation alleged to be due and owing him.”  The Court of Appeals affirmed the judgment for Ryan.

At-will language in employment applications and employee handbooks is critical.  However, as the Ryan decision makes clear, employers should also be sure that policies state unequivocally that bonus decisions are left to the employer’s sole discretion.  Policies should also state that promises regarding bonuses and other terms and conditions of employment are valid only if made in a writing and signed by the employer.