 |
Labor and Employment Bulletin
New York Employment Law: Bonus Payments
by Mat Paulose Jr., Esq.
What are your legal rights regarding bonus payments? Under New York law, an employer may not withhold a bonus that is part of an employee’s wages. The word “wages,” as used here, means “earnings for labor or services rendered.” Thus, whether a bonus is part of an employee’s wages stands or falls on whether the bonus is for labor or services rendered.
The law in this area is murky. But a few guideposts lead the way. Generally, a bonus that is based on the financial success of the employer will not be considered part of an employee’s earnings. Second, a bonus that is based on the discretion of the employer also will not be considered part of an employee’s earnings.
In Truelove v. Northeast Capital & Advisory, Inc., (N.Y. 2000), the highest court in New York held that a financial analysts’ bonus of $160,000 was not part of the analysts’ wages. According to the court, the employment contract between the analyst and his employer expressly stated that the bonus payment was based on the financial success of the employer and at the discretion of the CEO. In other words, the bonus was not based on the analysts’ “labor or services rendered.” This factor took the bonus payment out of the definition of “wages.” Accordingly, the court stated that the employer could deny payment of the bonus, apparently the entire $160,000.
Unfair? Surely the analyst thought so. He would have had a better chance if he had reviewed his employment contract and negotiated a change in terms to state that the bonus was contingent upon his own personal productivity or the objective success of the employer. Under these terms, at least one N.Y. court has held that the bonus payment would then be deemed part of an employee’s earnings for labor or services, and thus payable to the employee as of right. See Fiorenti v. Central Emergency Physicians, PLLC, (N.Y. Sup. Ct. 2001).
This is an important area of law for employees, especially considering the amount of money involved in some situations. At the least, employees should review their employment contracts and determine whether their bonus payments are indeed contingent upon their own performance.
Employers should also be aware. An employer who unlawfully withholds an employee’s bonus or fails to pay it otherwise will be liable for costs and attorneys’ fees. If the employer willfully withheld the bonus, then it is also liable for liquated damages in the amount of 25% of the total amount due. In such situations, the employer could also be subject to criminal penalties and fines. Clearly unlawful withholding of bonuses is a serious matter. |
