Can a significant change in incentives void an employment contract?

Question

Recently over at The Workplace there was a question regarding an employee withholding valuable information that they developed in their spare time. According to their employment contract all intellectual property they develop, regardless of work hours, belongs to the company.

The company also recently slashed the incentive program that the employee has been generating a significant amount of their income from. (A quick estimate provided a $60k/year difference in income for said employee.)

Since the employee only spent their off hours developing this intellectual property for the obviously significant incentive money, is the employee entitled to any compensation or the right to retain the property?

Since I don't have the actual contract I will simply assert for the purpose of this question that the contract has no stipulations regarding this.

As I am in the United States myself, I am mostly concerned with answers from the US. However, I would be interested to hear how this would be handled elsewhere as well.

Answer 1

Can a significant change in incentives void an employment contract?

Yes, because a party's unilateral, significant imposition which the counterparty did not expect strikes the premise of a contract/agreement being entered knowingly and willfully. Here, the contract or relevant portion thereof is voidable by the employee, because the employer's belated imposition is tantamount to a misrepresentation as contemplated in the Restatement (Second) of Contracts at § 164(1).

The contract clause regarding an employee's off-work hours might be unenforceable as unconscionable, more so where the incentive being slashed represents a significant portion of an employee's income (since it reflects that the employee's salary is not that high so start with). See the Restatement at § 177, 178, and 208.

is the employee entitled to any compensation or the right to retain the property?

Yes, but the applicable alternative --compensation vs. withholding the IP-- depends on what agreement the employee reaches with the employer.

I presume what prompts this part of your question is the mention --in the Workplace SE post-- that the engineer rejected the employer's bid (offer is somewhat of a misnomer) of $25,000 for the employee's off-work IP.

The engineer's reluctance is rightfully cautious. Prior to accepting the employer's proposal, it is in the engineer's best interest to ensure (with enough specificity in a new contract) the terms and conditions of that proposal, lest the employer subsequently argue that the payment of $25,000 encompassed any and all subsequent IP produced by the employee during his employment there.

Likewise, insufficient caution by the engineer regarding the aforementioned proposal may permit a finding that the parties' subsequent conduct reflects the engineer's acceptance of the new conditions (including the slashing of incentives).