Closing the Wage Act Door on Contingent Bonuses?: Massachusetts Court Holds Contingent Retention Bonus Not a “Wage” Under Massachusetts Wage Act
Earlier this year, we highlighted that the Massachusetts Wage Act (the “Wage Act”), while providing powerful protections to Massachusetts workers, does not apply to a profit-sharing arrangement tied to an employer’s overall profits. Now, another Massachusetts court—this time the District Court’s Appellate Division—has imposed an additional limitation in holding that the Wage Act does not apply to contingent retention bonuses.
Background Facts
In Nunez v. Syncsort Inc., the employer awarded a new hire retention bonus payable in two installments, but the bonus was subject to a number of conditions, including a requirement that an employee needed to remain in good standing with the employer through two designated retention dates in order to be eligible to earn and receive the bonus. The employer paid the employee the first installment of the retention bonus on the first retention date, but the employer terminated the employee on the second retention date without cause and refused to pay the second installment. The day after the termination, the employee sued the employer and the employer paid the second installment.
Decision
The sole question before the Court was “whether the retention bonus constitutes a ‘wage’ under the Wage Act.” In analyzing this issue, the Court noted the absence of any prior binding precedent on this question. The Court’s analysis did not expressly reference or address certain cases that have implied that there could be circumstances in which a bonus is potentially earned and subject to the Wage Act. See, e.g., Israel v. Voya Institutional Plan Servs., LLC, Civil Action No. 15-cv-11914-ADB, 2017 U.S. Dist. LEXIS 37961, at *18 (D. Mass. Mar. 16, 2017) (noting a “possible exception of a situation where the bonus has been promised, the employee has fulfilled her end of the bargain, and yet the employer attempts to renege”). Instead, the Court referenced analogous decisions by the Massachusetts Supreme Judicial Court (“SJC”) – Weems v. Citigroup and Mui v. Massachusetts Port Authority – in which the SJC held that two other types of bonus arrangements did not constitute “wages” under the Wage Act. In Weems, the SJC determined that because certain discretionary bonuses were determined in the employer’s sole discretion, they were not earned by the employee and, thus, were not a “wage” for Wage Act purposes. In Mui, the SJC discussed whether a contingent bonus (in the nature of a payout of sick leave for employees terminated without cause) comprised a “wage” for Wage Act purposes, but did not definitively answer that specific question and dismissed the appeal based on a dispute over whether the employee had satisfied a “good standing” bonus contingency.
In the Nunez decision, the Court acknowledged that “Mui may have opened the door a crack to the possibility that this type of contingent compensation could be construed as a ‘wage’ under the Wage Act” under certain circumstances, namely, “if the employee was indeed in good standing.” Notwithstanding this acknowledgement, however, the Nunez court closed that proverbial door on the specific facts before it, finding that the term “wages” has never been “broadly construed . . . to include any types of contingent compensation other than ‘commissions that are definitely determined and due and payable to the employee.’”
Arguments regarding whether, when and how contingent retention bonuses and similar types of bonuses may comprise wages under the Wage Act will continue to be raised before Massachusetts courts, including potentially on appeal. In the interim, employers looking to utilize retention bonus agreements should make sure to be absolutely clear about the conditions required for earning the bonus, to structure such agreements to expressly include and describe any contingencies, and to reserve discretion in making the determination of whether any such contingencies have been satisfied.
Mintz’s Employment Group will continue monitoring these developments and stands ready to assist employers with crafting retention bonus arrangements going forward.
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