Enforcement of Employee Bonuses
Moncada v West Coast Quartz Corp. (2013) 221 CA4th 768
West Coast Quartz Corp. is a company solely owed by two individuals. These two individuals were planning to sell West Coast and wanted their key employees to stay with the company. To keep these key employees, the two owners of West Coast repeatedly promised the employees that if they continued to work for West Coast until the sale, they would be paid a bonus from the sale proceeds that would be sufficient for them to retire. When West Coast was sold five years later, the employees did not receive their promised employee bonuses.
The employees sued for misrepresentation and concealment, breach of contract and implied contractual covenants, promissory estoppel, intentional infliction of emotional distress, and negligent misrepresentation. The Superior Court held in favor of the West Coast and dismissed all of the causes of action; however, the Appeals Court held that misrepresentation and concealment were appropriate causes of action that should have been considered.
West Coast Quartz Corp. is a company solely owed by two individuals. These two individuals were planning to sell West Coast and wanted their key employees to stay with the company. To keep these key employees, the two owners of West Coast repeatedly promised the employees that if they continued to work for West Coast until the sale, they would be paid a bonus from the sale proceeds that would be sufficient for them to retire. When West Coast was sold five years later, the employees did not receive their promised employee bonuses.
The employees sued for misrepresentation and concealment, breach of contract and implied contractual covenants, promissory estoppel, intentional infliction of emotional distress, and negligent misrepresentation. The Superior Court held in favor of the West Coast and dismissed all of the causes of action; however, the Appeals Court held that misrepresentation and concealment were appropriate causes of action that should have been considered.
Fraud and Deceit based on Concealment
The elements of an action for fraud and deceit based on concealment are:
Marketing West, Inc. v. Sanyo Fisher (USA) Corp.(1992) 6 Cal.App.4th 603, 612-613.
- The defendant must have concealed or suppressed a material fact;
- The defendant must have been under a duty to disclose the fact to the plaintiff;
- The defendant must have intentionally concealed or suppressed the fact with the intent to defraud the plaintiff;
- The plaintiff must have been unaware of the fact and would not have acted as he did if he had known of the concealed or suppressed fact; and,
- As a result of the concealment or suppression of the fact, the plaintiff must have sustained damage."
Marketing West, Inc. v. Sanyo Fisher (USA) Corp.(1992) 6 Cal.App.4th 603, 612-613.
Promissory Fraud and Damages
"Promissory Fraud" was also alleged in the case and is considered a subspecies of the action for fraud and deceit. "A promise to do something necessarily implies the intention to perform; hence, where a promise is made without such intention, there is an implied misrepresentation of fact that may be actionable fraud." Lazar v. Superior Court (1996) 12 Cal.4th 631, 638.
Lawsuits based on fraud must specifically state facts for each element of fraud. Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807; Tarmann v. State Farm Mut. Auto. Ins. Co.(1991) 2 Cal.App.4th 153, 157. The requirement to state specific facts also applies to the plaintiff's statement for damages.
Lawsuits based on fraud must specifically state facts for each element of fraud. Service by Medallion, Inc. v. Clorox Co. (1996) 44 Cal.App.4th 1807; Tarmann v. State Farm Mut. Auto. Ins. Co.(1991) 2 Cal.App.4th 153, 157. The requirement to state specific facts also applies to the plaintiff's statement for damages.
Appeals Court Decision
In the lawsuit with West Coast, the Appeals Court held the employees' allegations were sufficient to establish the cause of action for promissory fraud through concealment. The promise of a substantial bonus sufficient to retire was false and had induced the employees not to seek employment elsewhere. Furthermore, the promise of an amount "sufficient to retire" was enforceable and met the specific facts for damages requirement. A sufficient amount to retire can be determined by using standard formulas and actuarial tables.
Business Lessons
Moncada v West Coast Quartz Corp provides lessons to employers. Employers should not make continual promises to employees that they'll receive bonuses in an amount that can be actually calculated. In the West Coast lawsuit, the employer made false promises of bonuses in an amount sufficient to retire to convince employees to stick around. These false promises were sufficient for the employees to bring a lawsuit against their employer.
Contact Sacramento Attorneys
Contact our Sacramento business law office to schedule an initial consultation and learn more about defending against lawsuits for failure to pay promised bonuses. There are very specific requirements to establish fraud. Our lawyers are well-versed in these requirements and can help defeat a lawsuit claiming fraud.
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*The information provided in this post does not constitute legal advice or opinion. The information is for guidance purposes only. Individual situations vary and you should contact an attorney for a consultation. This post is considered a solicitation and advertisement. The post does not warrant the outcome of any matter. Sacramento Business Lawyer on the Enforcement of Employee Bonuses.