Earlier this week Crain’s Chicago Business blogger Brigid Sweeny wrote about Sears Holding Corp. suing its former head of home goods business for breach of contract. Sears alleges that the former executive, Chris Capuano, owes the company $750,000 because she failed to repay her signing bonus and relocation expenses when she resigned less than six months after her hire. The signing bonus was $150,000 and the relocation bonus was $350,000. The $750,000 figure comes from the costs and fees associated with Sears’ attempts to collect the money.
Many sign on bonuses and relocation packages come with a repayment obligation that expires after one or two years. And, if the agreement also has a fees provision that makes you responsible for the attorneys’ fees and costs associated with enforcing the contract, the price of a breach can obviously be high. I can only guess that Ms. Capuano left her $650,000 annual salary and $487,500 bonus opportunity at Sears to take on a more attractive role elsewhere. The question I have is why isn’t her new employer indemnifying her and resolving this matter? She clearly negotiated a lucrative contract with Sears. It seems likely she would do so with her subsequent employer.
Executives need to remember when they sign their employment agreement, they are not the only party seeking protections. Large employers are typically careful enough to to tie incentive compensation to an obligation. If you don’t minimize the liability in your up front negotiations, you should at least try to do it on the back-end. For some reason, the situation has gone far beyond that point in Ms. Capuano’s situation. And, those experienced with litigation know that the costs will only go up.