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Is a Bonus a ‘Wage’?: Not According to a Recent Connecticut Supreme Court Decision

Is a Bonus a ‘Wage’?:  Not According to a Recent Connecticut Supreme Court Decision

Are you currently employed in Connecticut and have been promised a year-end bonus or had been promised a year-end bonus and never received it?   A recent Connecticut Supreme Court decision may affect the amount of protection you are afforded under Connecticut law if your employer defaults or has defaulted on that promise.

This recent case addressed the question of whether a year-end bonus promised by an employer is considered a ‘wage’ for the purposes of the Connecticut Wage Act.  Answering that question in the negative, the Supreme Court denied a Connecticut employee the ability to proceed with a wrongful withholding of wages claim that he had initially pursued after his employer failed to pay out what the employee had thought to be a promised year-end bonus.

Under this decided Supreme Court case, the amount of liability your employer will face for failing to pay out a promised year-end bonus will hinge upon how your employer defined the conditions under which a bonus would be paid.  If the conditions are specific goals set for you as an individual employee (e.g. a certain number of billable hours need to be reached), then under the Connecticut Wage Act your employer will be required to pay out that bonus as wages in accordance with their promise.  If they do not, you are afforded the protections of the Wage Act and can bring an action against your employer for wrongfully withholding wages.  If successful, it is possible that you could receive, by way of damages, twice the full amount of your bonus and any attorney fees incurred in pursuing the action.  In addition, due to the serious nature of such an offense, your employer could potentially be fined and/or imprisoned for their actions.

Unfortunately, however, if your employer was more ambiguous about the requisite conditions for a bonus, under this new case law, it is likely that they will be able to avoid liability for wrongfully withholding your wages.  If that is the case, while you can still pursue other causes of action against your employer, you will not be able to receive twice the full amount of your bonus or attorney fees.

The events of this recently decided case unfolded as follows:   At the beginning of the employment relationship between an employee and a Connecticut law firm, the parties agreed that the employee’s annual compensation would consist of a base salary and a year-end bonus.  The employment contract called for this year-end bonus to be based on factors such as seniority, business generation, productivity, professional ability, pro bono work, and loyalty to the firm.  The employee remained at the firm for several years and each year he received his salary and the promised year-end bonus.  When the employee left the firm he discovered that he was not going to receive the year-end bonus for that last year of his employment.  To try and recover what he had thought was a promised bonus; the employee commenced an action against his employer alleging breach of contract and wrongful withholding of wages.

The trial court dismissed the wrongful withholding of wages claim, determining that the year-end bonus was not ‘wages’ as defined by the Connecticut Wage Act.  The breach of contract claim, however, went to trial.  The Trial Court found in favor of the employee and awarded him damages in the amount of his year-end bonus plus interest.  On appeal, the Appellate Court upheld the Trial Court’s finding as to the breach of contract claim but reversed the Trial Court’s decision to dismiss the wrongful withholdings of wages claim.  The Appellate Court determined that the structure of the agreement as to the year-end bonus meant that the bonus could have been classified as ‘wages’ under the Connecticut Wage Act and therefore held that the employee could proceed with his wrongful withholding of wages claim.

The issue of the wrongful withholdings of wages claim was appealed to the Connecticut Supreme Court where the Court decided that because the employee’s bonus was discretionary, (not ascertainable by applying a formula) it did not constitute ‘wages’ under the Connecticut Wage Act.  The employee, therefore, was not able to proceed with his wrongful withholding of wages claim.

Although the employee did recover some monetary damages through his breach of contract claim, it was not anywhere near as much as he would have received if he had been able to proceed with his wrongful withholding of wages action.

It is quite possible that after the release of this opinion many employers will revisit their bonus policies to make the language a little less precise or announce that their bonuses are discretionary in order to take advantage of the protections afforded under this recent case.  It is important, therefore, that as an employee you are aware of what kind of bonus you have been promised so that you know how strongly to rely on that promised bonus and what options are available to you if the employer refuses to pay.

If you have already been denied your year-end bonus and believe that it was a discretionary bonus, there are still ways in which you can potentially recover that lost income, such as the breach of contract claim pursued by the employee in this recent case.  If you have been denied a year-end bonus that was not discretionary and you had met the required conditions for receiving that bonus, you are still protected under the Connecticut Wage Act and can bring a wrongful withholding of wages action against your employer.  This action may allow you to receive damages in the amount double your bonus and possibly receive any incurred attorney fees.

If you have any questions regarding employment and labor law in Connecticut, please contact Joseph C. Maya, Esq. He can be reached at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com. Mr. Maya handles cases involving employment contracts, separation agreements, non-competition agreements, restrictive covenants, union arbitrations, and employment discrimination cases in New York and Connecticut.

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SEVERANCE AGREEMENTS AND OFFER LETTERS, OR SEVERANCE LETTERS AND OFFER AGREEMENTS: WHAT SENIOR MANAGERS AND DIRECTORS NEED TO KNOW

SEVERANCE AGREEMENTS AND OFFER LETTERS, OR SEVERANCE LETTERS AND OFFER AGREEMENTS: WHAT SENIOR MANAGERS AND DIRECTORS NEED TO KNOW

Given the state of the economy, companies large and small are looking to reduce head count and cut back their payrolls. Senior members of management are often the first to go as they represent big salaries and even bigger bonuses that severely impact the bottom line. We here at Maya Murphy, P.C. represent a number of executives for whom we are negotiating severance packages and/or job offers and see developing trends in both the hiring and termination aspects of employment law. In this article, we will point out and discuss those trends so that you are better able to assess your own particular situation as you consider leaving one company to join another, and decide whether to engage legal counsel to help you navigate the process.

On the severance side of the equation, companies are looking to shed employees at the lowest possible cost. Mutual understandings and customary practices that in better times might have formed the unspoken foundation for formulating a severance package have fallen by the wayside. Now, everything is a point of negotiation (if not actual contention) starting from a base line of zero, and nothing can be taken for granted. That having been said, the departing employee (particularly one at or near the senior “C” level, e.g., CEO, COO, CIO) is not totally devoid of leverage.

Departing employees, irrespective of their position in the company, are typically first offered the standard “fill in the blanks” severance package routinely generated by HR. The package could just as easily apply to someone in the mail room, as the Board Room. It is intended as a starting point for negotiation and should be viewed as such. The role of counsel is to take that “cookie cutter” offer and make it reflect the employee’s individual contributions and history of adding value to the company so as to justify a more generous severance package. Each proposed term or condition is considered and quantified as if taken from an “a la carte” menu. For example, non-competition, non-solicitation, or non-disparagement provisions each come at a cost to the employer. The severance package is negotiated as a unified whole; no term is agreed to until all the terms are agreed to. The objective is to negotiate a total “package” that is acceptable to the client without necessarily focusing on its constituent elements such as “salary,” “bonus,” or “vacation.”

If there is substantial push back from the employer, the employee has several arrows in his quiver. Sometimes, the employer is facing existing or threatened litigation and the departing employee may be called to testify by or on behalf of the company. The former employee’s assured cooperation has value to the company. By the same token, there may be need of a substantial transition process as responsibilities are shifted to the departing employee’s replacement. A short or medium term consulting agreement ensures the former employee’s availability and commitment, and has the added potential benefit of allowing payments to the former employee to be spread out over multiple accounting periods, thereby reducing their impact on the bottom line.

Offers of new employment require equal scrutiny and analysis. Of course, employers jealously guard and protect the “employment at will” relationship and in the absence of an enforceable contract, there is little that can be done to change that. There are, however, important provisions that can be added to an offer letter to make the new position more attractive. For example, where a departing employee is forced to forego the vesting of stock options or other benefits, the value of those benefits can be added to the offer as an employer buy-out. Similarly, offer letters now more frequently address termination and severance, as both employers and employees take a more realistic view of the fact that employees come and go, and sometimes have to be let go.

Traditional offer letter issues, such as the duration and geographic reach of a non-competition provision, remain fertile areas for negotiation and compromise. The rules for extending an offer of employment have changed to the extent that there now are no rules. The content of a particular offer letter is constrained only by the imagination (and ingenuity) of the employer, employee, and their respective counsel. Suffice it to say, however, that as offer letters have grown more comprehensive and complex, so, too, has the need for experienced counsel to undertake their review and analysis.

The attorneys at Maya Murphy, P.C. have extensive experience in all aspects of employment law, including preparation and review of offer letters and severance packages. For additional information, call Bob Keepnews, at (203) 221-3100, or e-mail him at rkeepnews@mayalaw.com.

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