Course-of-Conduct Modifications and Good-Faith Bonus Allocation: Commentary on Gutt v. North American Partners in Anesthesia, LLP (2025 NY Slip Op 02326; 237 A.D.3d 1063)

1. Introduction

Gutt v. North American Partners in Anesthesia, LLP (“Gutt”) pits an anesthesiologist, Dr. Frederick Gutt, against his long-time employer, North American Partners in Anesthesia, LLP (“NAPA”). What began as a profit-participation arrangement evolved into a complex dispute over bonus allocation, the enforceability of an unsigned “bonus plan,” and the scope of an employer’s discretion in approving that plan.

The Second Department was asked to decide whether either party was entitled to summary judgment on claims for:

• breach of contract,
• breach of the implied covenant of good faith and fair dealing, and
• violation of New York Labor Law article 6 (non-payment of “wages”).

The Appellate Division affirmed the Supreme Court’s denial of both motions for summary judgment. In doing so, the court clarified (1) when a written “no-oral-modification” clause can yield to a course-of-conduct modification, and (2) the circumstances under which a bonus tied partly to profitability may still qualify as “wages.”

2. Summary of the Judgment

The court held that multiple triable issues of fact preclude summary judgment on every cause of action:

1. Breach of Contract. Ambiguities in the written employment agreement, coupled with evidence that the parties may have orally adopted the 2014 Bonus Plan by performance, require a factfinder to decide the contract’s terms.
2. Implied Covenant of Good Faith and Fair Dealing. Whether NAPA unreasonably withheld approval of an equal distribution formula and diverted disproportionate funds to a practice-group director is likewise a factual dispute.
3. Labor Law Article 6. Because the bonus could be viewed as either (a) non-discretionary compensation for labor (i.e., “wages”) or (b) profit-sharing contingent on business success, the Labor Law claim also survives.

As a result, the Second Department affirmed the Supreme Court order in toto: neither side could bypass trial through summary judgment.

3. Analysis

3.1 Precedents Cited

• Detringo v. South Island Family Med. (2018) – Restated the classic elements of a breach-of-contract claim.
• Brad H. v. City of New York (2011) – Reinforced that an unambiguous contract must be enforced as written.
• Chimart Assocs. v. Paul (1986), Nappy v. Nappy (2007), Arnell Constr. Corp. (2016), Grove Realty (2024) – These cases outline when a contract is “ambiguous” and permit extrinsic evidence to resolve that ambiguity.
• Calica v. Reisman (2002) – Key authority that an oral modification may be enforceable, despite a no oral modification clause, if partial performance is “unequivocally referable” to the modification.
• JLO Dev. Corp. v. Amalgamated Bank (2024) and Ahmed Elkoulily, M.D. P.C. v. NY Catholic Healthplan (2017) – Both articulate how exercising a contractual right in bad faith can breach the implied covenant.
• Truelove v. Northeast Capital & Advisory (2000), Ryan v. Kellogg Partners (2012), Costello v. Curan & Ahlers (2024) – These cases define “wages” under Labor Law §190 and distinguish non-discretionary compensation from profit-sharing bonuses.

Each precedent supplies a doctrinal brick that the Second Department assembled into its reasoning.

3.2 Legal Reasoning

1. Ambiguity and Course-of-Conduct Modification.
   The court found the employment agreement “reasonably susceptible” to more than one interpretation, especially on how a “point system” must be created and approved. Under Calica, the unsigned 2014 Bonus Plan could still alter the contract if the parties’ actual practice (equal quarterly distribution) is unequivocally referable to that plan. Such partial performance raises a factual issue for trial.
2. Employer Discretion vs. Good Faith.
   Although NAPA reserved a right to amend the NPGPP, that right was cabined by a clause requiring that approval “shall not be unreasonably withheld.” Following JLO Dev., even a plainly discretionary clause may not be used in bad faith to divert promised benefits from another party. Whether NAPA’s conduct— allowing the practice-group director to re-allocate bonuses to himself—constituted bad faith cannot be decided as a matter of law.
3. Labor Law “Wages.”
   The court, relying on Truelove and Ryan, distinguished between (a) non-discretionary, performance-linked compensation (wages) and (b) contingent profit-sharing. Because Dr. Gutt’s bonus was calculated partly on the group’s gross revenue—but arguably also on his personal productivity—the classification is unclear. That indeterminacy defeats summary judgment for both sides.

3.3 Impact of the Decision

Gutt is more than a routine summary-judgment affirmance—it sends five important signals to New York employers, employees, and litigators:

1. Course-of-Conduct Can Trump Paper. Even the strongest no oral modification clause may yield if parties behave as though a new agreement governs. Meticulous documentation is now essential whenever an employer intends to require written modifications.
2. “Shall Not Be Unreasonably Withheld” Imposes a Real Duty. Employers that reserve discretion must exercise it in good faith; hiding behind formal contractual wording will not avoid litigation.
3. Bonuses Remain a Gray Zone Under Article 6. Where a bonus is intertwined with both individual performance and overall profitability, litigants should expect “wage” status to turn on granular facts, seldom resolvable on summary judgment.
4. Incentive Structures Must Be Transparent. Organizations should revisit bonus formulas and approval mechanics, ensuring that decision-making criteria are objective, published, and consistently applied.
5. Litigation Strategy. Plaintiffs claiming unpaid bonuses now have a roadmap: frame the plan as (a) implemented by course of conduct, (b) non-discretionary, and (c) linked directly to labor, thereby invoking both contract law and Article 6’s heightened remedies (e.g., liquidated damages and attorneys’ fees).

4. Complex Concepts Simplified

Summary Judgment

A procedural device to avoid trial when no material facts are in dispute. If any fact may reasonably be decided both ways, the motion is denied.

Ambiguity

A contract is ambiguous when its words can reasonably support multiple meanings. The judge decides whether ambiguity exists; the jury (or judge at trial) decides what the ambiguous language actually means.

No-Oral-Modification Clause (General Obligations Law §15-301)

A clause stating that the contract cannot be altered except in writing. New York nevertheless enforces oral changes if the parties’ unequivocal partial performance points only to that change.

Implied Covenant of Good Faith and Fair Dealing

A duty lurking in every contract that neither side will destroy the other’s right to receive the benefit of the bargain, even when acting within literal contractual rights.

“Wages” vs. “Incentive Compensation” (Labor Law §190)

Wages = compensation owed, fixed, and directly tied to labor. Incentive compensation = contingent, tied to profitability or employer discretion, and usually not “wages.”

5. Conclusion

Gutt v. NAPA does not decide who ultimately wins; rather, it clarifies how New York courts will approach three recurring workplace disputes:

1. Whether an unsigned plan—implemented in practice—can legally modify a written contract despite an anti-oral modification clause;
2. How far an employer’s contractual discretion extends before it breaches the implied covenant of good faith; and
3. When a bonus morphs into “wages” subject to Labor Law article 6.

By affirming that these questions are fact-intensive, the Second Department has effectively broadened the evidentiary canvas for trial courts and encouraged parties to resolve such matters with clearer drafting—or clearer conduct—up front. The decision stands as a caution ary tale: contractual formality, employer discretion, and profit metrics will not automatically protect a business from litigation when its practices tell a different story.