Court Rules Retention Bonuses Are Not Wages Under Massachusetts Wage Act

MM
McLane Middleton, Professional Association

Contributor

Founded in 1919, McLane Middleton, Professional Association has been committed to serving their clients, community and colleagues for over 100 years.  They are one of New England’s premier full-service law firms with offices in Woburn and Boston, Massachusetts and Manchester, Concord and Portsmouth, New Hampshire. 
The Massachusetts Appellate Division of the District Court – North District recently issued a decision regarding whether retention bonuses constitute wages...
United States Massachusetts Employment and HR

Published: Employment Law Business Guide
October 7, 2024

The Massachusetts Appellate Division of the District Court – North District recently issued a decision regarding whether retention bonuses constitute wages under the Massachusetts Wage Act, G.L. c. 149, § 148 (the “Wage Act”). In the matter of Nunez v. Syncsort Incorporated, NO. 23-ADCV-63NO, the court ruled that retention bonuses are not wages under the Wage Act and not subject to strict liability or treble damages under the Wage Act for failure to be timely paid.

Background

The defendant in this dispute formerly employed the plaintiff. The defendant promised to pay a retention bonus to the plaintiff, provided that the plaintiff remained employed with the defendant through the payment dates of the bonus unless the defendant terminated the plaintiff's employment without cause before any such date. The defendant terminated the plaintiff's employment due to a reduction in the workforce prior to the second payment date, but the defendant did not pay the plaintiff the second installment of the retention bonus on the date of the plaintiff's termination of employment by the defendant without cause. However, the defendant paid the plaintiff the second installment, in the month following his termination, after he filed a complaint against the defendant under the Wage Act for the defendant's failure to pay this amount.

Despite the defendant's ultimate payment of the second installment, the plaintiff claimed that the defendant unlawfully failed to pay him this amount in a timely manner in violation of the Wage Act. The dispute between the parties in this matter hinged upon whether a retention bonus constituted wages under the Wage Act and, therefore, subject to the Wage Act's requirement that wages be paid in a timely manner.

Wages Under the Wage Act Must be Timely Paid

In considering this claim, the court described the history and purpose of the Wage Act as follows:

“Originally enacted in 1879, the purpose of the Wage Act is ‘to protect employees and their right to wages' [in a timely manner] … Among other things, the Wage Act requires the payment of wages on a weekly or biweekly basis. The act provides that ‘any employee leaving his [or her] employment shall be paid in full on the following regular pay day,' and that ‘any employee discharged from . . . employment shall be paid in full on the day of his discharge . . . the wages or salary earned by him.' … Violations of the act result in strict liability and treble damages in the civil context, as well as potential criminal liability…”

The court went on to observe that though the Wage Act did not explicitly define “wages,” based on the Wage Act or prior judicial rulings, wages included holiday and vacation due under an agreement and commissions that are determined due (i.e. arithmetically determinable) and payable and excluded contributions to deferred compensation plans, severance pay, discretionary bonus programs, unused sick time under a use it or lose it policy, and payments to departing employees with respect to a percentage of their accrued sick time if they had been employed for at least two years and not been terminated for cause.

Retention Bonuses Not Wages

The court held that, like the excluded compensation programs identified above, retention bonuses did constitute wages under the Wage Act. In so ruling, it stated, “…we cannot ignore the long line of case law where our appellate courts … have narrowly construed the term “wages” under the act. Nor can we disregard the [Massachusetts Supreme Judicial] Court's acknowledgment in [a prior case] that it has never broadly construed the Wage Act to include any types of contingent compensation other than ‘commissions that are definitely determined and due and payable to the employee…'”

Key Take Home

The court's decision in this matter may not be the last word. The dispute may be subject to further appellate review. However, it provides employers with helpful guidance on what Massachusetts courts may deem wages under the Wage Act. Based on this ruling, not all bonuses will be considered wages under the Wage Act. A court may determine that discretionary or contingent bonuses are excluded from wages for this purpose.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More