A recent First Circuit decision in Dahua Technology USA Inc. v. Zhang highlights the high stakes of contract drafting and the courts’ increasing willingness to consider ambiguity claims even late in litigation. The dispute involves a severance provision that promised former executive Feng Zhang “monthly severance payments… in the amount of $680,000 for sixteen (16) months.” Dahua argued this meant $680,000 total, paid over 16 months; Zhang claimed it meant $680,000 each month, totaling $10.2 million—a view U.S. District Judge Indira Talwani previously accepted.
The First Circuit reversed this decision, ruling that the language was sufficiently ambiguous to require further fact-finding. While Judge Talwani had enforced the clause as written, believing it was clear, the appellate court found multiple reasonable interpretations and pointed out inconsistencies with Zhang’s concurrent employment agreement, which detailed both monthly and annual pay. Key takeaways for employment lawyers include:
- Drafting clarity is essential, especially in severance agreements involving large sums or high-level executives.
- Ambiguity and mistake can overlap, and courts may revisit arguments waived if justice requires.
- Judges may interpret unclear language against the drafter, particularly in employer-generated contracts.
- The First Circuit’s ruling indicates a greater willingness to allow equitable contract reform when the language is materially unclear.
The case now returns to district court for further resolution. Employment lawyers advising clients on termination agreements should prioritize clarity and consistency in employment and severance terms and be ready for courts to scrutinize language that once seemed unambiguous. More information on this particular case can be found in Massachusetts Lawyers Weekly.
