PING: Get that “Discretionary” “Guarantee” In WritingURL: http://www.inhouseblog.com/inhouseblog/2005/08/get_that_discre.htmlIP: 127.0.0.1BLOG NAME: InhouseBlog – News for Inhouse CounselDATE: 08/23/2005 03:47:19 AMGeneral counsel compensation – get it in writing.

The 7th Circuit recently ruled that a fired employee had no right to a pro-rated share of his year-end bonus because it was discretionary.

Plaintiff Lillien applied for a job as general counsel for Peak6. Peak6 sent Lillien two offer letters, promising him a base salary of $150,000 and a “year-end discretionary bonus.” The letters also stated that, in the event of an IPO, Lillien would receive stock options. Despite the discretionary language in the offer letters, according to Lillien, two employees of Peak6 told him that the process leading up to an IPO was substantially complete and that he was guaranteed $500,000 in options. Lillien asked the Human Resources department to put this bonus guarantee in writing, but he was informed that Peak6 never puts target bonus numbers in writing. Lillien accepted the job.

When Lillien started work for Peak6, he found out that the company’s CFO had just quit, dooming the IPO process. The company suffered losses and, after roughly 7 months, Lillien was fired. Lillien sued Peak6 on contracts theories. He lost on summary judgment, and the 7th Circuit affirmed.

Lillien claimed, among other things, that Peak6 breached the employment contract by failing to give him a pro-rated share of his year-end bonus. However, the 7th Circuit held that the offer letter explicitly described the year-end bonus as “discretionary.” The court determined that the bonus letter made no guarantee of a bonus, and the language of the letter was not open to any other interpretation. Lillien was precluded from introducing evidence concerning bonus conversations with Peak6 employees because of the parol evidence rule.

Lillien v. Peak6 Investments, L.P., 2005 U.S. App. LEXIS 15832 (Aug. 2, 2005).

[Meredith R. Miller]