Long Term Incentive Payment (LTI)
David Sellers found himself unemployed when his employer was purchased by another company that immediately started slashing costs. Despite an employment agreement requiring the employer to pay COBRA benefits and $68,000 in outstanding sales commissions, Sellers did not receive payment, and subsequently sued for fraud and breach of fiduciary duty. The COBRA and sales commission matters were resolved. However, Sellers believed he was owed $428,681 as a long-term incentive payment (LTI). The trial court held that Sellers was not employed at the time the payment accrued, and therefore under his employment agreement, Sellers was not entitled to payment. The Court of Appeals disagreed. Sellers v. Minerals Technologies, Inc. and CETCO Services Company, LLC. Here’s what happened.
Must Be Employed To Earn Payment
Sellers’ employment agreement created a common condition precedent for payment. In other words, to be eligible for the LTI payment Sellers had to be employed on January 18th. The case turned on what was Sellers last day of employment.
- Sellers received his termination package on December 19th or 20th. Around the same time, Sellers also received a month’s salary. The trial court ruled Sellers’ last day of employment was December 19. Since he was not employed on January 18, Sellers was not entitled to payment.
- Sellers was terminated without cause and without 30 days’ notice.
- The employment agreement required the employer give Sellers 30 days’ notice before terminating or pay a month’s salary in lieu of notice.
- On January 15, Sellers received another month’s pay, which the Appeals Court determined was in lieu of 30 days’ notice. Therefore, the Court reasoned Sellers termination date was actually Valentine’s Day. Interestingly, the opinion is silent as to whether the company paid wages in arrears.
- Since the date of termination was after January 18, the contract’s condition precedent was met, and employer owed Sellers his LTI payment.
Condition Precedent Could Have Been Excused
The Court went a step further, explaining that “if one party prevents another from performing a condition precedent or renders its fulfillment impossible, then the condition may be considered fulfilled.” The Court explained that when the employer terminated Sellers before January 18, the Employer prevented Sellers from being able to fulfill the condition precedent. Sellers did not have a choice to remain employed until January 18, so employer would still be liable for the payment. Since the Court did not publish the opinion, this case should not be cited as precedent. Otherwise, this opinion would be concerning for all employers who have provisions in their compensation plans and employment agreements that indicate the commission or bonus is earned only if an employee is employed on a particular date.
While the rules of contract law in Texas are well-established, the application can still be tricky. That’s when the experience of a commercial lawyer and breach of contract attorney come in handy. Whether you want to avoid expensive, lengthy litigation matters or you need aggressive representation, we are ready to put our decades of winning experience to work for you.
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Addison, Texas 75001
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