Written unambiguous agreements between employers and employees are generally enforced based upon their specific terms, irrespective of whether the employer or employee claim they orally agreed to something other than what is in the written agreement. This issue was addressed by the United States Court of Appeals for the First Circuit in the February 18, 2011 case of Anthony Artuso v. Vertex Pharmaceuticals, Inc. That court hears appeals from both the Massachusetts and New Hampshire federal trial courts.
Vertex is based out of Massachusetts and recruited Artuso, a high-level executive from a rival offering him restrictive stock shares, stock options, and a bonus in addition to his regular compensation. The agreement specified that Artuso would serve as an at-will employee with the title of Vice President for Strategic Planning. The written agreement had an integration clause, which expressly stated that it would constitute the complete agreement between Artuso and Vertex regarding employment matters and will supersede all prior written or oral agreements or understandings on these matters.
Vertex terminated the employment of Artuso asserting that it was part of reorganization. As a result, he was not able to exercise certain stock options, which could only be exercised during continued employment, and he did not receive a bonus for the year he was terminated. The stock agreement which incorporated by reference the stock and option plan thereby also incorporated a continued employment clause of the stock and option plan. The court found that incorporation by reference in an agreement is a common tool in drafting contracts and employing that technique does not in and of itself create any ambiguity in the contract. In other words, as long as the employee has access to a certain plan referenced in an agreement, the employer would be well within its rights to incorporate by reference that plan whether it be a stock option plan, detailed defined pension plan, or expressly defined bonus or sales commission plan. As a result, Artuso lost his claim that he was entitled to stock options because the stock and option plan literally stated that you had to be employed in order to exercise the stock options.
Artuso further argued that because his employment agreement provided him an entitlement to a prorated bonus the year upon which he became employed with the company that he was also entitled to a prorated bonus on the year that he left the company. The agreement states: “if you commence your employment prior to November 1 of a calendar year you will [be] eligible to participate in the bonus plan for that year on a pro-rated basis”. Therefore no prorated bonus was due. Anthony Artuso argued that the implied covenant of good faith and fair dealing prevented Vertex from terminating the at-will employment of Artuso so close to the time in which he would obtain his bonus. The court did note that implicit in all contracts, including contracts for employment at-will, there is the implied covenant of good faith and fair dealing. While an employer has the right to discharge an at-will employee, the discharged employee may recover unpaid compensation if the employee was terminated in bad faith and the compensation is clearly connected to work already performed. This implied covenant serves to preclude an employer from taking unfair financial advantage. Unfortunately for Artuso, he did not sufficiently allege bad faith factual evidence in his complaint as to the reason for his discharge and the defendant had stated that it was part of a reorganization. Further, the bonus itself was found to be created at the discretion of the board of directors. The breach of implied covenant of good faith and fair dealing claim was dismissed.
J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf. Attorney Marr is licensed and practices in both New Hampshire and Massachusetts. Attorney Marr can be reached at [email protected].