Posts tagged with "promise"

Is a Bonus a ‘Wage’?: Not According to this 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 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 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.

The Conditions of a Bonus Payment

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.  In the case that this action is 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.

Case Details

The events of this 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 Court’s Decision

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.

Importance of Knowing the Terms of Your Bonus

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 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 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.

Sufficient Consideration for At-Will Employees

Home Funding Group, LLC v. Kochmann, 2007 U.S. Dist. LEXIS 41376

Home Funding Group, LLC was a New York corporation with primary business operations in Connecticut that engaged in the residential mortgage brokerage business.  The company employed Mr. Nicholas Kochmann and Mr. Patrick Dougherty in its New Jersey office.  They worked at-will for the company from January 2004 to May 1, 2006, and July 18, 2006, respectively.  The company had both employees sign an Employment Agreement that contained non-compete and non-solicitation clauses to protect Home Funding’s business interests.

The employees later signed an “Invention Assignment Agreement” stating that Home Funding was the sole owner of any invention connected to their employment and that it would maintain full intellectual property rights.  The agreement stated that Connecticut law would govern any legal disputes and litigation in state and/or federal court.  Both employees signed a new restrictive covenant in March 2006 that amended and superseded the 2004 Employment Agreement.

Misters Kochmann and Dougherty both voluntarily terminated their employment with Home Funding and Hamilton Financial, a direct competitor in the mortgage broker industry, hired them shortly thereafter.  Home Funding sued its two former employees for breach of the non-compete agreements and requested they be enjoined from further employment with Hamilton Financial.

The Court’s Decision

Misters Kochmann and Dougherty asserted that the agreements were not legally binding on them because they lacked valid consideration, claiming that continued employment is inadequate consideration for a covenant executed after the start of employment.  The federal court sitting in Bridgeport, Connecticut rejected this argument and held that the agreements were properly executed, contained adequate consideration, and were binding upon the parties.

The former employees argued that Connecticut law requires an employer to promise to something different from what it is already obligated to do when it wants to modify/amend a restrictive covenant with one or more of its employees.  The court however applied Home Funding’s legal assertion that at-will employees may be terminated at any time at the employer’s discretion and thus continued employment amounted to adequate consideration to support a valid non-compete agreement.

The court noted that in this case, Home Funding had the burden of proof at trial to demonstrate that the agreement was correctly executed and enforceable.  Home Funding was able to provide such proof and the federal court held in its favor.  Had Misters Kochmann and Dougherty not been at-will employees however, the court would have likely held that the agreement did not have the requisite consideration and could have invalidated the agreement in its entirety.

The lawyers at Maya Murphy, P.C., are experienced and knowledgeable employment and corporate law practitioners and assist clients in New York, Bridgeport, Darien, Fairfield, Greenwich, New Canaan, Norwalk, Stamford, Westport, and elsewhere in Fairfield County.  If you have any questions relating to your non-compete agreement or would like to discuss any element of your employment agreement, please contact Joseph C. Maya, Esq. by phone at (203) 221-3100 or via e-mail at JMaya@Mayalaw.com.