Gearbox CEO Randy Pitchford has a less-than-ideal reputation when it comes to financial matters.
Launched this past fall, Borderlands 3 from Gearbox Software quickly became 2K Games’ fastest-selling title to date and had sold almost 8 million copies by the end of 2019. Despite this strong financial performance, some employees are claiming that the company is withholding the bonuses they were promised when production began. A new report from Kotaku says that Gearbox CEO Randy Pitchford informed workers via email yesterday that they would not be receiving their royalties.
Anonymous sources told Kotaku’s Jason Schreier that Gearbox employees earn wages far below industry averages, but historically the difference has been made up by way of profit-sharing. According to Schreier’s sources, Gearbox employs a 60/40 split on game royalties, with 60% of the profits going to the company and its owners, while the remaining 40% is distributed to the workforce via quarterly bonuses. Now, though, those bonuses are gone.
The withdrawal of these royalties has some questioning if Gearbox employees may have grounds to pursue legal action against the company. For Richard Hoeg of Hoeg Law in Michigan, it depends on the verbiage used in any potential contracts that exist.
“In terms of a class action, the lynchpin is what [Schreier’s] sources mean by ‘promised,’” Hoeg told GameDaily. “I posit that there’s a fair distance between management telling folks what Borderlands 2 bonuses were and that they ‘hope’ bonuses will be in a similar range, on the one hand, and making a legally-actionable obligatory contractual promise on the other. In my opinion, it is far more likely that Mr. Pitchford and management engaged in the former (including recruiting based on the possibility of big BL3 bonuses), but probably didn’t step over the line into the latter.”
According Kotaku’s report, many employees have come to depend on these royalty checks as guaranteed income. Hoeg, who covered the news in his Virtual Legality web series, said that if Pitchford did indeed “promise” employees these bonuses, they might have the legal grounds to sue.
“If he did that, then you can get into a space where the employees could have ‘relied’ upon that promise and been damaged by the company’s failure to deliver,” Hoeg explained. “We generally call that ‘detrimental reliance,’ but there are other terms that are either ancillary to the concept or are unique to given states and jurisdictions. ‘Unjust enrichment’ is probably the most notable, in which it could be said that the company wrongfully profited off of a breach in promise.”
It all depends on the exact terms of the bonus and profit sharing plan, Hoeg said.
“The key is the ‘promise,’” he reiterated. “Schreier doesn’t present good evidence of what might have been promised, and Mr. Pitchford has been in the game long enough to know that you really shouldn’t promise anyone future profits. Heck, Borderlands 3 could have been a total bust. So, my gut reaction is that I doubt there is a legal claim here, but not that some potential plaintiff’s attorneys might explore the concept. It’s not impossible. Very much depending on what Mr. Pitchford and management did or did not say.”
In a statement made to Kotaku, Gearbox defended itself against allegations of withholding pay.
“The talent at Gearbox enjoys participation in the upside of our games -- to our knowledge, the most generous royalty bonus system in AAA,” the statement reads. “Since this program began, Gearbox talent has earned over $100M in royalty bonuses above and beyond traditional compensation.
“In the most recent pay period Gearbox talent enjoyed news that Borderlands 3, having earned revenue exceeding the largest investment ever made by the company into a single video game, had officially become a profitable video game and the talent at Gearbox that participates in the royalty bonus system has now earned their first royalty bonus on that profit. Additionally, a forecast update was given to the talent at Gearbox that participates in the royalty bonus to set expectations for the coming quarters.”
According to an earnings call in February, Strauss Zelnick, CEO of Gearbox publishing partner Take-Two, said Borderlands 3 ran significantly over budget. As a result, publisher 2K insisted that Borderlands 3 become profitable before employees would be issued any profit-sharing checks. It seems that this only recently became the case despite very impressive sales numbers for the game up to this point.
Whatever the legal fallout that results from this controversy, there’s no denying Pitchford’s rocky recent past. In 2016, Pitchford was accused of taking $12 million in bonuses from Gearbox after Pitchford himself accused former Gearbox lawyer Wade Callender of reneging on $300,000. Callender has since provided supposed proof of Pitchford’s accused illicit activity, but the matter has been settled without further inquiry. Pitchford has also been sued by composer Bobby Prince over unpaid royalties for Duke Nukem 3D, and accused of leaving a thumb drive full of porn at theme restaurant Medieval Times.
According to Schreier’s anonymous sources, Pitchford’s reaction to employees unhappy with the accusations of losing out on profit-sharing checks was to tell them that they were welcome to quit the company.
Kotaku also notes that, while Gearbox is a privately-held company, it has plans to go public in the near future. If it does hold an IPO, executives will undoubtedly find themselves under more scrutiny than ever before, meaning that Pitchford’s behavior will be under a microscope.
While the legal grounds of Pitchford’s most recent controversy are shaky at best, there’s no denying his less-than-sterling reputation. Hopefully, any workers that have been negatively impacted by the accused actions can find peace soon.
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