by Edward O. Sweeney, Coughlin & Gerhart, LLP
Employee handbooks are recommended for several reasons, including that they set forth key company policies. Well-written handbook policies state how compensation will be addressed and who has the power to bind the company. In a recent case, the Appellate Division, 1st Department, held that a company’s handbook was enough to defeat an employee’s claim to compensation based on oral promises.
“Henry” was employed by Newmark & Company Real Estate, Inc., which was acquired by BGC Partners, Inc. He considered leaving Newmark before the acquisition. He claimed that Newmark said he would receive a nondiscretionary bonus of $100,000 for 2011 and that Newmark’s CEO orally promised that he would receive a portion of the acquisition proceeds if he agreed to stay on after the transaction. Henry also claimed that in reliance on the CEO’s promise, he stayed with Newmark and took on additional responsibilities rather than seeking another job.
After the acquisition, Henry did not receive a bonus or proceeds he believed were owed to him from the transaction. He filed claims against Newmark alleging that the oral promises of future compensation amounted to a “quasicontract” (i.e., an informal agreement that lacks the formal elements of a written contract but is treated as one out of fairness).
Newmark moved to dismiss Henry’s quasicontract claims, arguing that the terms of its employee handbook, which was signed by Henry, cut off his claims. Newmark’s handbook stated that bonuses were paid at the discretion of the company and that no one at Newmark was authorized to make oral promises that could bind the company.
Defeating Oral Promises
The Supreme Court granted Newmark’s motion and dismissed Henry’s claims. On appeal, the 1st Department affirmed, upholding the dismissal. The appellate court noted Newmark’s handbook expressly reserved its right to pay out bonuses at its discretion.
Further, the handbook explained that no one at the company had the right to orally modify the bonus policy. Regarding Henry’s acquisition proceeds claim, the court similarly found that the handbook notified him that the CEO had no authority to orally commit the company to pay him any portion of the proceeds. Newmark & Company Real Estate, Inc. v. Frischer, ___ A.D.3d ___ (1st Dept., 2016).
This case demonstrates the deference courts give to well-written employee handbooks. Newmark’s tightly worded policies regarding bonus distributions and oral promises shielded the company from what could have been significant liability. Because he signed the handbook acknowledgment, Henry was deemed to have been sufficiently notified about Newmark’s policies, and he was stopped from reasonably relying on the oral promises. Regularly consult with experienced labor counsel to ensure that your employee handbooks are up to date and contain policies to help fend off similar claims to compensation.