Guaranteed Rate paid $1.4 million in bonus incentives to a former executive under the agreement that he would stay employed with the company for two years. Richard Faust, former VP of Mortgage Lending at Guaranteed Rate, left after a year and four months.
Now Guaranteed Rate is requesting for over half a million dollars to be paid back, according to a suit filed in a federal court in California.
The mortgage lender is accusing Faust of failing to pay back a part of his bonus within ten days of his final day of employment, thereby breaching a contract. The former executive quit July 23, 2023 and the outstanding sum of the bonus should've been paid back by Aug. 6, 2023, the complaint filed March 5 said.
Reporting by the Wall Street Journal found that
Guaranteed Rate declined to comment on pending litigation Monday. Faust did not respond to a request for comment.
In the original compensation plan, signed by the mortgage executive in 2022, Guaranteed Rate said it would advance a signing bonus in the amount of $1.4 million in two installments– $700,000 on his first eligible payroll date and another $700,000 on his fourth eligible payroll date. But the lender stipulated the signing bonus would be "subject to repayment unless and until the respondent achieved two years of continuous employment with GRI from the effective date of Feb. 8, 2022."
If the respondent resigned or was terminated for cause prior to the two-year anniversary, he would "be obligated to repay the full net amount of the advance of the signing bonus to GRI within ten days of the last day of his employment," the complaint said.
The money was advanced via a promissory note. According to the complaint, if Faust defaulted on the promissory note by failing to repay any unearned portion interest would begin to "accrue at a rate of 9% per annum from the date of default."
Alongside the compensation plan, Faust signed an arbitration agreement, which automatically triggers arbitration if there are any disputes arising out of the respondent's employment. Guaranteed Rate is seeking $533,712 in damages, plus money to cover legal fees and costs arising from this complaint.
According to one industry stakeholder, lofty sign-on bonuses with a clawback period became a norm during
However, there have been instances where a producer received a hefty sign-on bonus from their employer but left prior to the required clawback period, where new employers will cover the outstanding amount, the stakeholder added.
