Connecticut Employment Law Blog : Connecticut Employment Lawyer & Attorney : Daniel Schwartz : Stamford, Hartford New Haven, CT

UPDATED

Various blogs have started to link to this one today after AIG released a white paper to support its assertion that it was required to make payments to various executives and employees over the last week.

It turns out that the retention plan at issue is to be construed under Connecticut's wage and hour laws.  As bloggers and commentators will quickly realize, Connecticut doesn't exactly have an litany of cases on which to base any type of legal analysis.  In some ways, it's like trying to do a jigsaw puzzle with about 10 pieces. But that doesn't mean that some parameters of the discussion haven't been formed.

I can't (and won't) comment about the specific AIG plan or employee agreements because I haven't seen them but I do want to briefly comment on some items of my prior posts to clarify a few things:

1) Any analysis of whether retention payments are "wages" is dependent on the language of the retention plan or agreement.

Without looking at the underlying plan and agreement, all the talk about whether a payments to be made under a retention plan are required to be made as "wages" (and subject to penalties if they aren't made) is just speculation.  Connecticut wage laws MAY apply to certain retention plans, but there are situations where certain payments to employees should not be considered "wages" but may more akin to fringe benefits (like unused vacation).  As I said back in December, whether something is a "wage" all depends on the language of the agreement between an employer and employee. 

2) Characterizing payments to employees as "bonuses" but not "wages" is really beside the point. Some bonuses can be considered wages (and therefore subject to Connecticut's wage statutes when they are linked to services rendered) and some are not (see my discussion of a recent Connecticut Supreme Court case here). 

Instead, to determine whether a payment is a wage or not, courts look at the specifics of the agreement between an employer and employee (or the applicable plan) and determine if there is a link between an employee rending services and the payment.   The more that there is a link between an employee's services and the payment by the company, the more likely that courts will view such payments as "wages" (and be subject to Connecticut's wage and hour laws.) 

Retention agreements (or "stay bonuses" or "key employee agreements) have long been used by companies to provide incentives to employees to stay with a company, particularly when that company is going through a merger or bankruptcy, etc.  Much like any other contract, the ability to modify the contract is going to depend on the language of the agreement. And whether or not retention agreement payments are "wages" will depend on the contract itself.

But aside from the wage issue, there's another theory underlying retention agreements -- basic contract law.  Perhaps if you're having difficulty understanding the concept in terms of wages, think of this example:

Suppose you want to renew your season tickets with the Yankees but have been skeptical of them because they haven't won a World Series in years (I know, I'm a Yankees fan).  The Yankees offer you a contract as an incentive. That contract states that if you continue to be a season ticket holder for two years, you will get front row seats for 10 games of your choice. 

Now suppose that you stayed a season ticket holder for two years, would anyone really argue that you were not entitled to get those front row tickets?  Wouldn't there be an outrage if the Yankees just unilaterally decided not to honor the terms of that deal anymore? And wouldn't there be an outrage if the government stepped in to prevent such tickets from being issued? 

Connecticut's wage laws are going to be under a spotlight for a little while.  I just hope we'll get some sound analysis of the issues involved rather than soundbites. Somehow, I'm not convinced we'll get that over the next few days.

Update 5 p.m. Several legislator and state officials today that they were working on a way to re-write state wage law.  CT News Junkie has all the details.  There's even a draft proposal that would define a "bonus" and "retention bonus" under state law and prevent the doubling of penalties for any failure to make such payments.  Making changes to the wage law to include definitions of "bonuses" and "retention bonuses" may only add to the confusion present here. 

Additionally, simply because there is a plan or contract here, does not mean that there are never ANY escape clauses to them. The Word on Employment Law points out a few here.

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In a decision released today, the Connecticut Appellate Court upheld a lower court judgment that found that a local lawfirm breached its employment contract to an associate by failing to pay that associate a bonus.

It's rare to see lawfirms involved in employment disputes, and even rarer, to have cases proceed all the way to an appeal.  Yet, that's exactly what has happened to the case of Ziotas v. The Reardon Law Firm (download here). It will no doubt be strange to cite as a precedent a case involving other attorneys in the state.

But aside from the novelty of the type of case, the facts of the case are a bit more mundane.  (As with all case descriptions, the "facts" are taken from the court decision itself.  There is no doubt that the parties believe that there are additional "facts" surrounding this matter too.)

 An associate who left the firm contended that he was entitled to a pro-rata bonus payment under the terms of an employment contract he had.  The firm refused and argued that it was not required to pay him a bonus under the agreement.  The lower court (and now Appellate Court) disagreed with the lawfirm and found that the associate was entitled to the bonus under the agreement.

The Court found that the lawfirm had expressly promised the associate that he was entitled to a bonus. Just because the amount of the bonus was uncertain, the court ruled, does not make the promise of a bonus no less certain. Thus, the court upheld the lower court decision to find that the lawfirm needed to pay the associate a pro-rata bonus.

The court also addressed whether the claim for bonus falls within the state's wage statutes (and concludes that it did). I'll address that portion of the claim in an upcoming post because it has implications for other employers as well.

In the meantime, this case reinforces the age-old notion that no matter the type of employer, the terms of employment between the employer and employee should be articulated in a clear and concise fashion.  It's Monday-morning quarterbacking to say that a well-drafted employment agreement in this case could have avoided the dispute present here, but I'm sure the parties each wish they could have avoided nearly a decade's worth of litigation with such documentation.

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Two new sets of statistics released this month by the Connecticut Department of Labor shed some light into the workplaces in Connecticut.

First and foremost, the number of deaths in the workplace last year remained the same as in 2006 -- 38.  While any death is tragic, the rate is far below the national average.  The Hartford Business Journal reports that work injuries claimed nearly 5,500 lives nationwide in 2007, resulting in a rate of 3.7 deaths per 100,000 workers. Connecticut's rate for last year was 2.1 deaths per 100,000.

So, are Connecticut employers and workers more careful than the rest of the nation? That's unlikely, according to the DOL, which attributes the lower death rate to the fact that most jobs in the state are in "low-risk industries".  In other words, there aren't a lot of deaths doing insurance and financial services work in Connecticut. 

Second, the DOL reported to the Governor M. Jodi Rell that it recovered nearly $7 million in unpaid wages for workers in Connecticut during the fiscal year that ended June 30.  The press release from Governor Rell (available here) touts the department's "success":

The Department’s Division of Wage and Workplace Standards recovered $3.2 million after 3,234 workers complained they were not paid wages owed to them. The division also recovered $1 million by enforcing Connecticut’s prevailing wage laws and returned $2 million more to workers unpaid for overtime or the minimum wage. Additionally, the department recovered $58,000 in back pay owed to service workers hired by private contractors for work on state property.

According to Division Director Gary Pechie, the unit handled more than 25,000 telephone and written inquiries during the past fiscal year and provided outreach services to businesses and schools to ensure that laws were fully understood.

Perhaps some of these companies thought they could make a cheap buck at workers' expense. But more likely, many of these companies were simply unaware of their obligations. 

IS following the law easy? At times, no.  Overtime rules can be confusing and employers are often unaware of obligations to, for example, pay wages on a weekly basis unless an exception has been granted.  Some of the laws can be found here, but ultimately, remaining vigilant about such laws will reduce the likelihood that your company's run-in with the DOL will end up as part of one of this "statistic".

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