On June 6, 2018, in Ayala v. CyberPower Systems (USA), Inc., the United States Court of Appeals for the Eighth Circuit, applying Minnesota law, confirmed that a compensation agreement did not alter the employee’s at-will status. As I know you all know, under Minnesota law, the general presumption is of at-will employment, meaning employers are free to terminate an employee for any lawful reason, and employees may resign at any time for any reason. While the employers and employees can contract around this presumption, the parties must have a clear intention to do so. So, how did it get to a lawsuit?
In 2006, Daniel Ayala began working for CyberPower Systems as the Vice President, an at-will employee. Six years later, Ayala was promoted to Executive Vice President and General Manager for Latin America. As a result, Ayala and CyberPower entered into a new agreement entitled “Compensation Agreement,” that outlined the Ayala’s salary and bonus structure under his new position. The agreement was to “remain in place until sales reached $150 million USD.” Under the “Employment terms,” section, the agreement stated, “[t]he 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 terminated Ayala before sales reached $150 Million. Ayala then filed a lawsuit against CyperPower, claiming the agreement altered the at-will employment presumption, and instead promised him employment until $150 million in sales was reached. The court disagreed, and found the agreement “unambiguously did not modify Ayala’s status as an at-will employee.” The court’s analysis focused on that fact the title and content of the agreement solely concerned compensation. This is notable as the majority of employers title such a document “Employment Agreement,” not “Compensation Agreement”. Further, the court noted, “the agreement later reiterates that, rather than guaranteeing Ayala’s employment, it sets out only his compensation until the sales threshold is met.” Therefore, the court found the agreement did not express CyberPower’s clear intention to alter the at-will employment status.
Accordingly, employers looking to enter into a compensation agreement with an employee without altering the at-will employment status should clearly state the agreement pertains only toward a compensation plan, and consider titling it “Compensation Agreement” instead of “Employment Agreement.” In addition to the title, the content in the agreement should focus only on compensation terms and avoid detailing or describing other employment terms.