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Compensation Agreement Did Not Modify At-Will Status, Eighth Circuit Holds

As any regular reader of this blog knows, at-will employment – under which an employee may be terminated for almost any reason, or no reason at all – is the “default” relationship in most jobs.  There is also no requirement in most industries that parties utilize an employment contract.

Parties who choose to form an employment contract, however, may (but are not required to) modify this at-will employment in a variety of ways.  Most commonly, these can take the form of a guaranteed contract term (as an infamous example, Chris Davis’s 7-year contract with the Orioles) or adding the requirement that an employer may only terminate the employee “for cause.”

A divided panel of the Eighth Circuit recently reaffirmed the strength of the at-will employment presumption in interpreting a Compensation Agreement involving a high-level executive.  Ayala v. CyberPower Systems (USA), Inc., No. 17-1852 (8th Cir. June 6, 2018).

Daniel Ayala was hired by power-supply product manufacturer CyberPower Systems as a vice president in 2006.  His employment agreement at the time of his hire explicitly specified that he was an at-will employee.  The following year, after Ayala’s initial period on the job proved lucrative, Ayala and CyberPower signed another employment agreement clarifying that the president or vice president of the company could alter the “at-will status” of their position.  (The parties agreed that Ayala was still an at-will employee, however.)

Then, in 2012, Ayala drafted a “Compensation Agreement,” which CyberPower signed, for a new position that the company had offered to create for him as Executive Vice President and General Manager for Latin America.  The Compensation Agreement outlined Ayala’s salary and bonus structure, adding that the “plan will remain in place until sales reach $150 million USD.”  The Compensation Agreement also contained an “Employment terms” section containing the language:

The above-mentioned agreement outlines the new salary and bonus structure to remain in place until $150 million USD is reached.  It is not a multiyear commitment or employment contract for either party.

CyberPower later terminated Ayala, before sales reached $150 million.  Ayala then sued for breach of contract and related claims.  The district court granted summary judgment in the employer’s favor, concluding that the Compensation Agreement unambiguously did not convert Ayala from an at-will employee to one with a guaranteed term of employment.  Ayala appealed.

A split Eighth Circuit affirmed.  Writing for the majority, Judge Raymond Gruender (one of 25 jurists on the president’s Supreme Court nominee shortlist) explained that the Compensation Agreement simply altered Ayala’s payment package, not his entitlement to continued employment.  Given the “strong presumption” of at-will employment under applicable (Minnesota) state law, Ayala could not show that CyberPower breached the contract.  Judge Beam dissented, reasoning that while a jury could very well rule in the employer’s favor, Ayala had shown a genuine dispute of material fact to survive summary judgment.

The case offers a useful reminder to employers of the benefit of making employment terms clear if entering into contracts with employees.  There is no legal requirement that such an agreement must explicitly confirm what is already presumed about at-will employment, but differentiating between promised terms and discretionary terms (such as eligibility for, rather than entitlement to, specific benefits) can prove quite helpful when a court is called upon to clarify the terms of a deal.

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