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Terminating an employee for demanding a promised bonus may worsen your cash-flow problem.

Clark v. BayDocs, Inc., No. 3:12CV896 (E.D. Va. March 29, 2013) (Lauck, J.)

Alan Clark signed an employment agreement with BayDocs, Inc. in September of 2008. That agreement stated, in pertinent part, that Mr. Clark’s employment was “at will,” that Mr. Clark’s salary would be $225,000 per year plus bonuses, and that Mr. Clark would be entitled to a six month severance package if BayDocs were to terminate his employment. At the end of 2008 Mr. Clark received a $10,000 bonus. In the spring of 2009, BayDocs increased his salary to $285,000 per year, and in December 2009 BayDocs’ owner informed him that he would receive another $10,000 bonus. In 2010 BayDocs experienced circumstances that required the company to reduce Mr. Clark’s salary to $225,000 and to delay payment of the 2009 bonus. In December of 2010, BayDocs confirmed that BayDocs could not and would not pay the 2009 bonus.

By June of 2011 BayDocs had asked Mr. Clark to sign a new employment agreement. This new agreement reduced his job duties to that of only one position, reduced his salary to $155,000, and reduced his estimated weekly hours to 32. The new agreement did state that the original employment agreement remained intact, though. Clark signed the new agreement, but only after he added language indicating that the original severance provisions remained intact. In response, BayDocs told Clark that it could not afford the severance provision. Mr. Clark insisted that he would not waive his entitlement to the severance, and began working at the $155,000 salary job.

In May of 2012 BayDocs told Mr. Clark that staff needed to be eliminated, and that the staff eliminations would begin with him. BayDocs and Mr. Clark again discussed his severance, with BayDocs indicating that he was owed some amount but also indicating uncertainty with regard to the amount it was willing to pay. Mr. Clark wasn’t terminated yet, though. A week later BayDocs attempted to reduce Mr. Clark’s salary again, this time to $116,250. Mr. Clark said that he would not agree to this, and BayDocs stated that it would treat his failure to sign as a resignation. In response, Mr. Clark insisted that he was not resigning and that he did not accept this salary reduction. He also stated that, if and when he was terminated, he expected to be paid his contractual severance payment, which he stated amounted to $112,500, and the promised but unpaid $10,000 bonus from 2009. BayDocs did not agree with Mr. Clark’s assessment of the situation. The company took the position that Mr. Clark’s failure to sign the new contract was a resignation, stated that it would send Mr. Clark’s final paycheck, and terminated his employment on June 7.

Mr. Clark filed a complaint against BayDocs that alleged two breach of contract claims, then sought to amend his complaint to add a tort claim for wrongful discharge from at-will employment. This wrongful discharge claim, the complaint’s Count III, is a “Bowman” claim. We have discussed Bowman claims extensively in previous posts (here and here) but generally, in Virginia an employer cannot discharge an employee if doing so would violate the public policy of the Commonwealth. For example, as in Bowman v. State Bank of Keysville, an employer cannot terminate employees for refusing to vote their shares of stock in a certain manner, because public policy requires that stockholders vote their shares as they please, without the threat of termination.

Mr. Clark’s Count III alleged that BayDocs wrongfully terminated him because he refused to take a third significant salary reduction, and that this termination was in violation of Virginia’s public policy (the “salary reduction theory”). However, this wasn’t Mr. Clark’s only stated reason for his termination: In the factual allegations section of the complaint, he also stated that BayDocs terminated him because he demanded that BayDocs honor the contract by paying him a $10,000 bonus and a severance package (“the Contractually Promised but Unpaid Compensation Theory”).

Judge Lauck denied Mr. Clark’s motion to amend his complaint. In doing so she decided that the proposed amendment to the complaint was futile, because no Virginia public policy prevented BayDocs from terminating Mr. Clark because he wouldn’t accept a salary reduction. Accordingly, Mr. Clark’s “salary reduction theory” could not give rise to a Bowman claim. However, Judge Lauck did grant Mr. Clark leave to file another motion to amend, this one with a complaint specifying that the Bowman claim is based on the Contractually Promised but Unpaid Compensation Theory.

This case is another in a growing line of Virginia decisions that hold that an employer who terminates an employee for demanding to be paid earned compensation wrongfully discharges the employee in violation of public policy. This opinion illustrates the important difference, in this sort of claim, between promised future income and earned income. Under this decision, the employee who is terminated for refusing to take a pay cut (lost future income) probably does not have a wrongful termination claim, but an employee who is terminated for demanding to be paid something already earned (contractually promised but unpaid compensation) probably does have a claim.

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