Yesterday, I discussed the employment contract portion of a new Appellate Court case, Ziotas v. The Reardon Law Firm (download here).
Today, I’ll discuss the second part of the court’s decision on whether the associate’s bonus could be said to be "wages". Why is this important? Because under state law (Conn. Gen. Stat. 31-72), failure to pay wages to an employee is a violation of law and could entitle the employee to double damages. Here, the Appellate Court said that the bonus could be "wages" and remanded the case to the Superior Court for further analysis of this issue.
The issue, the court said, is whether any agreement or offer gave the employee the right to compensation in exchange for services that the employee provided:
It is not relevant whether the amount of that bonus was calculated on the basis of the number of hours worked, as a percentage of the defendant’s net income or on some ‘‘other basis of calculation,’’ which may or may not incorporate the efforts of others. The issue instead is whether the terms of the parties’ employment agreement, as alleged in the complaint, vested in the plaintiff a right to compensation in the form of a bonus in exchange for the services that he had provided during the first ten months of 1998. …
Under these facts and circumstances, namely, the agreement between the plaintiff and the defendant, the bonus could have been classified as wages for purposes
of § 31-71a (3).
Why is this important to employers in Connecticut? Because if an employer’s agreement with an employee is not precise as to why and when a bonus will be paid out, it is certainly possible that the court will find that the bonus is in exchange for the employee’s services (and thus "wages"). As a result, even if the employee leaves in the middle of a calendar year, the employee might be able to claim that he or she is entitled to a pro-rata bonus.
Some employers have structured offer letters and agreements to make it clear that bonuses are contingent on an employee still being employed as of the day of payout. Others have indicated that bonuses are entirely discretionary on behalf of the company, thereby removing any reference to the bonus being tied to the employee’s exchange of services.
Regardless of the path or paths that the employer chooses, this Appellate Court decision is a good reminder to employers to review their bonus structures with their employees and ensure that the language that is used (particularly for the upcoming calendar year) is precise and accurate.
For extra credit, employers may also want to take a look at a 2002 Supreme Court decision which clarified the rules on wages and bonuses further. The case, Mytych v. May Dept. Stores Co., 260 Conn. 152, 159, 793 A.2d 1068 (2002), can be found here. Even better, employers should discuss this with legal counsel to get a greater understanding of the exposure that the company may have about this issue.