A recently resolved employment contract dispute ended with a media executive being awarded $406,000 — a sum roughly $1 million less than what he’d asserted his employment contract had promised. The misunderstanding and subsequent court case make clear that high earners need to ensure contract clarity when negotiating an exit package.
The case involved Steven Kotok, who joined Bauer Media Group as CEO and President in 2016 after having led The Week magazine and The Wirecutter. His employment contract with Bauer included a severance clause that promised him payments if he was fired without cause or left for “good reason.” The contract stated that he would receive “an amount equal to the sum of (x) the Employee’s monthly Base Salary rate” plus “(y) the Annual Bonus for the year in which the termination occurs at the target bonus amount,” with these amounts “paid monthly for a period of 6 months following such termination.”
When Bauer Media was acquired by A360 in 2022, Mr. Kotok’s employment was almost immediately terminated without cause. In a court filing, he asserted that the terms he’d agreed to in 2016 meant that he would be paid six months of base salary ($275,000) plus six times his annual bonus ($1.5 million), totaling $1.775 million. A360 Media rejected this assertion and argued that the terms of the contract meant he would be paid six months of total compensation—his salary and bonus combined—for a total of $400,000. The $1.4 million difference between the two resulted in a claim being filed in May of 2022 in the Superior Court of New Jersey, Bergen County. It was subsequently removed to the U.S. District Court for the District of New Jersey, where it was heard by U.S. District Judge Jamel K. Semper.
In examining both the contract language and documentation of the negotiations that led to it, the judge noted that the payment terms’ clause was “not well-constructed,” leaving him to seek the parties’ intentions. He ultimately sided with A360 based on multiple factors, including that during the original contract negotiations, Mr. Kotok had proposed “12 months of total compensation (including bonus)” as his severance package. Bauer had countered with an offer of twelve months of compensation if fired within the first year, or six months if terminated later. Kotok accepted this counteroffer.
Judge Semper wrote that it was “absurd” to think that Bauer intended the severance to jump from their initial offer of $275,000 (six months of salary) to $3.55 million (twelve months of salary plus twelve years of bonus payments) without that figure being explicitly included in the contract’s terms. He also noted that during the acquisition process, Mr. Kotok had been asked to provide A360 with all of Bauer’s severance liabilities. At that time, he provided a chart that listed his own severance as just $275,000. He later sent the company an updated chart that listed his severance as “TBD,” but which never mentioned the $1.775 million figure he later claimed in court.
Finally, the court considered that Bauer had never offered more than one year of total compensation as severance to any employee and that the company’s HR director had testified that they “would not have hired Plaintiff if he had required severance of 6 or 12 years’ worth of bonus.”
In light of all these factors, and despite A360 arguing that he should receive nothing due to what they called his “unclean hands,” or bad faith conduct, the judge awarded Mr. Kotok the full amount he had determined was owed under the contract: $400,000 in severance payments plus $5,849.31 for unpaid health insurance premiums, totaling $405,849.31.
This case makes clear the importance of a clearly written employment agreement that spells out the numbers that high-earners are owed and the calculation by which the payment is reached. Terminology is important: When Mr. Kotok negotiated the terms of his employment contract, he’d used the term “total compensation (including bonus)” to indicate severance. This language suggested a combined figure rather than the separate multipliers he argued in court that he was entitled to. It is also important that all answers to correspondence be carefully checked before responding: Mr. Kotok supplied and later approved documents that listed his severance as $275,000, and this worked against him in the end.
If you’re an executive negotiating the terms of a severance package, small details and clarity in contract language can make a significant difference. Having an experienced employment attorney like the professionals at Schorr & Associates help you negotiate and review your contract before signing can ensure that you receive the severance that you deserve.