Phantom Ambiguity in the Eastern District of Pennsylvania?

On December 1, 2007, AVAX Technologies and one Francois Martelet entered into an employment agreement providing for Martelet to serve as AVAX’s CEO. It all ended in litigation, and recently the District Court for the Eastern District of Pennsylvania issued this opinion.

The only part that caught my eye involved the following provision:

Discretionary Performance Bonus. Employee shall be entitled to participate in the Company’s annual discretionary bonus program, which shall have a target range of up to 50% of Employee’s Base Salary based on milestones to be mutually agreed on between the Compensation Committee and the Employee and prior to the beginning of each bonus period. For the first year of the Employment Period, Employee shall receive a minimum bonus of 30% of the Employee’s base salary, which bonus shall be paid no later than thirty (30) days after the first anniversary date of the employment period. After the first year of the Employment Period, the Employee shall not be entitled to a minimum bonus amount.

The employee argued that he was entitled to a 30% bonus for 2008. AVAX, on the other hand, argued that this provision “only provides that if plaintiff was awarded a bonus for 2008, such bonus would be at least thirty percent of his annual salary,” and so “plaintiff’s 2008 bonus was not guaranteed, and he is not entitled to any bonus for 2008.”

The court decided that this provision was ambiguous, in that it “could support both parties’ interpretation.” Me, I would have decided this aspect of the dispute in the employee’s favor—there doesn’t seem anything ambiguous about “Employee shall receive a minimum bonus of 30% of the Employee’s base salary.” (Although I would have made the Company, and not the intended recipient, the subject of the sentence.)

Sure, the bonus program as a whole was discretionary, but the parties could have intended that the first year not be discretionary.

Nevertheless, this dispute represents a failure of drafting.

To articulate the meaning advanced by AVAX, the provision would have had to have been drafted very differently, along the following lines: “If the Company decides that Employee is entitled to a bonus for the first year of the Employment Period, that bonus must equal no less than 30% of the Employee’s base salary.”

If instead the intended meaning was that advanced by the employee, it should have been expressed in a way that precluded any argument.

About the author

Ken Adams is the leading authority on how to say clearly whatever you want to say in a contract. He’s author of A Manual of Style for Contract Drafting, and he offers online and in-person training around the world. He’s also chief content officer of LegalSifter, Inc., a company that combines artificial intelligence and expertise to assist with review of contracts.