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Equity, Bonus & Commission Disputes

Warning: companies can change bonus & commission structures–after the fact.

In Texas, companies have substantial discretion to change their equity, bonus, and commission plans–even in mid-stream. However, legal issues arise when changes in compensation plans reduce payments when employees have already achieved target metrics, sales have been made or deals have been closed. In those circumstances, arguably, the employee or independent contractor has already earned a bonus or commission. 

Some employer’s comp plans state that employees forfeit their rights to equity, trailing interests, bonuses, or commissions if they are not employed on the payment due date.  This is typically called a “you must be present to win” provision.

What to do When a Compensation or Commission Plan is Changed

When a company announces changes to its commission or bonus plan that reduces payouts, an employee who does not object in writing and continues to work after receiving notice of the changes may waive her or his legal rights to the prior, higher payment structure. If the Company makes a change, with the help of an attorney, you should carefully craft a diplomatically worded email to HR that you do not agree to the change.

If you quit before vesting occurs or your bonus or commission is paid, you risk losing payments you would have received. If you must quit prior to the time that you are due to receive a payment, try to confirm whether the company will waive any “must be present to win” provision, accelerate vesting or otherwise pay you. 

Exceptions to Plan Provisions

Exceptions to plan provisions may be enforceable, if there is a historical custom, pattern, or practice of vesting equity, paying trailing interests, bonuses or commissions, despite plan provisions to the contrary. If a company is intentionally acting in bad faith and/or trying to mislead executives and salespeople regarding equity, bonuses, or commissions, the company can be liable for fraud. Also, companies are at risk for discrimination claims, if they consistently make payments to some employees and then don’t pay other employees. Companies should be 100% consistent with their comp plans. 

Key Takeaways

1. If Companies provide equity or pay bonuses or commissions, they should utilize a written comp plan. This decreases misunderstandings, confusion, or mistakes.

2. Companies without a clear written plan may unwittingly be liable to vest equity and pay bonuses or commissions based on custom, pattern, or practice.

3. If the metrics or plan provisions are unclear, ask for written clarification.

4. Employees should obtain and safeguard a copy of all comp plans, all summaries of the plans, and all e-mails describing the plans or changes in the same.

5. If you resign prior to receipt of payment, you are at risk for not receiving equity, bonuses, and/or commissions.

6. Ambiguity or confusing provisions about payments will often be construed against a companyif the company wrote the plan.

7. Companies should be consistent regarding distributing equity and all other payments. Inconsistencies can subject the company to liability for discrimination claims.

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Rogge Dunn represents executives, entrepreneurs, and financial advisors in business and employment matters. These include the CEOs/ presidents of American Airlines, Beck Group, Dave & Buster’s, Gold’s Gym, Halliburton Energy Services, Kinko’s, Texas Capital Bancshares, Texas Tech University, Trammell Crow Holdings, and Whataburger. Corporate clients include Adecco, Beal Bank, Benihana, CBRE, Cintas, Match.com, Rent-A-Center, and Outback Steakhouse. Dunn has been a Super Lawyer every year Thomson Reuters has awarded that honor and recognized as one of the top 100 attorneys in Texas. He has been a D Magazine Best Lawyer 11 times. Executives and companies who need the power of a trial attorney hire Rogge Dunn.

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