It may have seemed like a simple sales incentive plan (SIP) to reward employees upon the sale of the subsidiary, but Ingersoll Rand ended up paying twice.  The 2000 SIP had a formula for bonus payments based on the sale price of the subsidiary.  The 2000 SIP provided that it was effective September 1, 2000 and until the subsidiary was sold.  After 2 years, Ingersoll Rand was unable to sell the subsidiary.  After 4 years, Ingersoll Rand had a buyer and adopted another, more modest SIP for the eventual sale.  While Ingersoll Rand declared that the 2000 SIP had expired, employees took payments from the new 2004 SIP and then sued to recover on the 2000 SIP…and won.  What happened?

The New Jersey District Court opinion (Nye v Ingersoll Rand Company, 5/10/11) just handed down pointed out a number of drafting issues which contributed to the outcome:

• The plan document clearly said it was effective until the sale of the subsidiary.
  • There could have been a termination date or expiration terms.
  • There could have been provision for amendment by the employer at will.
• The second SIP did not explicitly replace or terminate the 2000 SIP.  The court did not view the second SIP as a successor plan.  Waiver of rights under predecessor plans had no meaning.
• Employee enrollment in the second 2004 SIP did not explicitly release any claims under the 2000 SIP. 
• Plaintiffs claimed that saying the 2000 SIP had expired was a fraudulent statement.  Treating the 2000 SIP as expired raised questions of consideration for any release or waiver.
• Allowing employees who retired a pro-rata share raised issues where "retirement" was not defined.

The moral of the story:  carefully draft incentive and other plans.  Let the lawyers consider adding "boilerplate" because it might just turn out to be helpful.