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BREAKING: Conn. Supreme Court Rules That Bonuses Based on Subjective Factors Are Not Wages

Posted in Wage & Hour

Remember a Connecticut appellate decision a few weeks ago that suggested that a bonus allegedly promised to an associate could be "wages" under Connecticut’s wage statutes? Indeed, a fellow Connecticut blogger suggested that 2008 was shaping to be a banner ynot public domain - see original link at morgue fileear for employees.

Well, not so fast. A new Connecticut Supreme Court decision today (and officially released on December 30, 2008) suggests new limits on whether bonuses are really wages.  Employers in Connecticut can and should breathe a huge sigh of relief that Connecticut’s wage statutes are not going to continue to be interpreted in an extreme manner.

The decision in Weems v. Citigroup, Inc.(download here) arises from a federal case in Massachusetts that certified a question to the Connecticut Supreme Court. (For those unfamiliar with the process, a federal court can ask a state’s highest court to clarify state law if it needs it).  

The decision has a few points which I will followup in the upcoming days, but the most important part for employers is the conclusion of the court that the bonuses given to employees here were not wages.  In particular, the Court found that because the bonuses were awarded on a discretionary basis and not linked to the "ascertainable efforts of a particular employee", the bonuses are NOT wages.

The court though isn’t through.  The court found that the terms of a regular and branch manager bonus in this case were also not wages even though the Plaintiffs claimed that they had to meet certain goals: 

Although the plaintiffs argue that the branch managers had to achieve ‘‘specific goals’’ to receive the bonuses, thus rendering them compensation for services rendered, a review of the bonus plans cited in the parties’ joint appendix, as well as the deposition of…[the] human resources director…., indicate that the bonus awards are tied to subjective factors such as diversity within a branch, and the profitability of the particular branches, which are factors not entirely predictable or within the control of the specific employee. Thus, we conclude that the bonus and branch
manager programs are not wages contemplated by § 31-71a (3), and, therefore, the wage statutes are inapplicable to these particular claims.

Thus, what the Court is suggesting is that even if a department manager’s goal is to increase revenue by 10%, any bonus tied to that revenue increase is not a "wage" because is not within the control of the specific branch manager.  (If you’re curious, the Court simply ignores the Ziotas v. Reardon Law Firm decision.) 

Again, look for a followup post soon on the other portion of the case in which the Court considers whether the forfeiture provisions of three different capital accumulation plans have offered to their
employees through a voluntary payroll deduction violate Connecticut’s wage statutes.  The court also concludes that forfeiture provisions do not violate Connecticut law either.  

For employers in Connecticut, the immediate takeway is to review your bonus plans to look at the discretionary portion of it and to also determine whether the bonus is tied to a particular employee’s performance. Bonuses still could be wages in another case, but structured correctly, employers can limit their liability and give them discretion to reward employees for work done well.

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