Also known as:profit-sharing plan · profit sharing plans · profit-sharing plans · PSP
Written by attorneys · grounded in primary & secondary sources — see below
An employee benefit plan that permits employees to receive a share of the employer's profits through discretionary contributions allocated according to a predetermined formula. Contributions are often allocated in proportion to each participant's compensation.
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How it applies
Common Examples
2
Board Approves Plan for Contractors
Red Networks adopted a profit sharing plan that awarded shares to longtime independent contractors who had worked exclusively on company projects under daily manager direction for five years. Investor Ursula sued, claiming the plan exceeded corporate authority because the recipients were not formal employees. The court upheld the plan because the contractors performed services under the corporation's control and therefore qualified as agents eligible for the benefits.
Former Manager Receives Benefits
MotorGrid established a profit sharing plan that granted annual share bonuses to Luis, a retired plant manager who later served as an independent sales representative. A new board declared the plan ultra vires and attempted to rescind the benefits. The court rejected the challenge because the statute authorizes such plans for former employees and agents regardless of later contractor status.
Meacham v. Knolls Atomic Power Laboratory554 U.S. 84, 91–99 (2008)
Common questions
Frequently Asked
1
May a corporation establish a profit sharing plan for independent contractors who function as agents?+
Yes. The Model Business Corporation Act grants corporations express authority to establish profit sharing plans for current or former directors, officers, employees, and agents. Courts examine whether the recipients performed services under the corporation's direction and control even if formal agreements label them independent contractors.
Supporting sources
554 U.S. 84, 91–99 (2008)Employment Law
…reasonable (as the Court’s opinion ably shows), I defer to the agency’s views. See Raymond B. Yates, M. D., P. C. Profit Sharing Plan v. Hendon , 541 U. S. 1, 24-25 (2004) (Scalia, J., concurring in judgment). I therefore concur in the Court’s judgment to vacate the judgment of the Court of Appeals.