Here’s a nice case for the New Year: a win for a class of Panera Bread store managers who claimed that the operation cheated them out of part of their bonus, by imposing a cap on the amount that could be earned only after the program commenced. The panel majority holds that once the managers performed any service under the terms of the bonus plan, it formed a unilateral contract that the employer could not modify without consent.
Boswell v. Panera Bread CCompany, No. 16-3230 (8th Cir. Jan. 5, 2018): “In an effort to recruit and retain general managers for its restaurants, Panera created a program under which qualifying managers were eligible to receive a relatively large one-time bonus, among other emoluments. A few years after creating the program, Panera asked the managers to sign an employment agreement that incorporated a compensation plan providing that the one-time bonus would be paid about five years after the manager executed the agreement.”
A year into the program, Panera announced that the bonuses – which were based on store profitability, and were unlimited in amount – would be capped at $100,000. For several years, no one complained. Then several managers filed suit, claiming that the cap breached a contract that was formed by their continued performance under the terms of the bonus plan.
The district court certified a class of sixty-seven mangers and granted them summary judgment.
The Eighth Circuit affirms, though with a split opinion. The majority holds that the bonus plan was a unilateral contract that became effective when the managers continued to work under its terms. It also rejects a variety of defenses proffered by Panera to avoid the contract.
The panel initially considers and rejects the managers’ chief argument that the bonus plan was a bilateral contract, holding under Missouri law that continuing performance by at-will employees did not supply consideration for the bonus plan. “at-will employment is terminable at the will of either party on a moment-by-moment basis, so the employment relationship is not legally enforceable.” Nor did the “incidents” or “boilerplate” terms of the bonus plan (e.g., a confidentiality clause, a choice-of-forum clause, a jury waiver) provide consideration.
Nonetheless, the bonus plan could be enforced on the alternative theory that it was a unilateral contract, i.e., an offer accepted by performance rather than by a mutual promise.
Panera’s chief argument against this theory, citing a number of intermediate-court decisions from Missouri, was that the managers had to render “substantial” performance to accept a unilateral offer. But the panel majority rejects this interpretation.
“We do not think … that the Supreme Court of Missouri, if confronted with the issue, would conclude that the offeree of a unilateral-contract offer must render a substantial part of the requested performance to make the offer irrevocable. We think it would conclude instead that an offeree must merely begin performance, and since each of the managers in the class here had at least begun performing under the offer, we conclude that Panera could not modify the offer terms as to any manager.”
Panera also argued that it “expressly reserved the power to revoke or modify its offer,” both (1) by “conditioning the payment of the bonus on the managers’ continued employment, a matter that Panera controlled since the employment was at will,” and; (2) providing that it could “modify one of the variables in the formula used to calculate the bonus, so it could effectively control the amount of the bonus.” But the panel majority holds that these provisions did not authorize the particular step that Panera took of adding a cap.
“Panera could have terminated the managersif it chose and precluded them from receiving the bonus, but it did not. Or Panera could have adjusted the variable in the formula over which it had control, but it did not. Since the managers had begun performing the unilateral contract offer, Panera was not entitled to move the goalposts on them by imposing a bonus cap, which was outside the contemplation of the unilateral-contract offer.”
The panel further holds that an enforceable power to modify would have to be clear, while here the managers were “left to connect the alleged dots between their at-will status and a condition to payment.”
The panel also rejects several defenses that Panera offered to avoid the contract. It first holds that there was no novation (substitution of a new contract), because the terms and conditions of the bonus plan did not change other than the unauthorized cap: “the only promises, if any, exchanged by Panera and the managers was continued at-will employment.”
It then holds that there was no estoppel or waiver by the managers for continuing to perform several years after the modification, because the cap constituted a repudiation of the offer. Under the doctrine of repudiation, the managers were privileged to “elect either to wait till the time for performance or to treat the repudiation as a breach and a final assertion by the promisor that he is no longer bound by the contract.” Thus, they could work the full five years and then sue.
Finally, the panel rejects a commercial-frustration defense, holding that a downturn in business (the ostensible reason for imposing the cap) was forseeable. “Panera could have accounted for lower-than-anticipated profits when it devised the program and changed the formula to the bonus payment, but it did not. So it bears the risk.”
Concurring, Judge Loken would have affirmed on the more limited ground that the signed bonus plan included a no-modification clause: “No modification or waiver shall be valid unless in writing signed by the party against whom the same is sought to be enforced.” Thus, there was no need to consider how much performance the managers had to render to form a unilateral contract. Indeed, Judge Loken noted his “grave doubt [that] the Supreme Court of Missouri would apply general principles applicable to other kinds of unilateral contracts to conclude that merely beginning at-will employment renders the terms and conditions of that employment irrevocable, as the court seems to conclude.”