Pay promised bonuses, or pay even more
Published 08/02/07

An employer's failure to pay a former employee an agreed-to bonus for her prior year's performance could result in the employer paying twice that bonus amount and the attorney's fees and costs of the employee in bringing a wage claim against the employer.

This point was illustrated in the New Hampshire Supreme Court decision of The Demers Agency v. Tami Childs Widney decided on July 17, 2007. In that case, Widney worked for The Demers Agency from March 2003 to February 2005. Her agreed-upon compensation package included an annual base salary, quarterly bonuses based upon sales, and a year-end bonus based upon the agent's profitability for the year. The profitability bonus was based upon the agency's loss ratio of its insurer Nationwide Insurance Company. Nationwide could take up to six weeks after the end of the calendar year to calculate the agency's loss ratio based upon the relationship between the amount of money collected in premiums and the amount Nationwide paid out in claims. Generally, the agency received its bonus from Nationwide on or about March 31, but knew the loss ratio, which was used to determine the bonus before the bonus was actually distributed.

In the first quarter of 2004, Widney received her year-end bonus based upon the portion of the year she worked in 2003. In December 2004, the agency's owner, Chris Demers, told Widney that if the agency met a specific sales goal before year end, she would receive a bonus of $9,475.00. However, in January 2005 Demers told her that because the agency had missed its goal, her bonus would only be $7,106.25.

During the period of time that she worked for the agency, she was considered by Mr. Demers as his “right hand” and he had done a good deal of training of her. Upon Widney informing Demers of her decision to take a job with another agency, Demers wrote an e-mail to her that stated that her departure from the agency was “very unprofessional.” Thereafter, the agency took the position that since she was not employed with the agency at the time that the bonuses were issued, she was not entitled to a bonus.

Widney filed a wage claim before the New Hampshire Department of Labor asking not only for the $7,106.25 Demers stated in January 2005 she would be paid, but also double that amount in liquidated damages and attorney's fees.

Under this wage statute, if an employer willfully and without good cause fails to pay the employee's wages, the employer must also pay liquidated damages in an amount of 10% of the unpaid wages for each day except Sunday and legal holidays upon which such failure continues after the day upon which the payment is required or in an amount equal to the unpaid wages, whichever is smaller. Therefore, for all practical purposes, that liquidated damage provision usually calls for doubling of the wages. The wage statute also allows a prevailing employee to be reimbursed for her attorney's fees.

The hearing officer found evidence to support that notwithstanding Demers' argument that he had a policy that he would not pay bonuses to employees who were not employed at the time of the bonus issuance, in fact, this bonus was part of the agreed-to compensation for services by Widney and this policy was never revealed to her. The hearing officer further found that Demers had no reason to withhold the year-end bonus and did so only because Demers was upset with Widney for leaving his company and taking a job with another insurance agency. The net result was that the agency had to pay twice the amount of wages due plus attorney's fees for Widney as well as, of course, their own attorney's fees in defending the action.

The Supreme Court specifically noted that while they saw no legal infirmity in a bonus system that conditioned payment of a bonus upon continued employment for some stated term, there was evidence in this case to support the hearing officer's disbelief that Demers had such a condition in his bonus system.

If the agency had a written policy, signed off by Widney, which expressly stated that in order to receive the bonus the employee would have to still be employed in the agency at the time of the bonus issuance, the Court could very well enforce such a policy. Of course, for practical purposes, an employee under such a policy would probably wait out that period of time before quitting. The Court further noted that it was not expressing any opinion as to whether a bonus would be a wage if it were entirely gratuitous and not part of an agreed-to compensation package.

Lastly, it is noted that pursuant to a wage regulation, it is incumbent upon an employer to put in writing any compensation package to an employee and that absent doing so it is more likely that a hearing officer will, when in doubt as to whether the employer or employee is telling the truth, decide in favor of the employee since the employer could have easily removed such credibility issues by putting in writing and producing to the employee the specific policy and conditions in order to receive a bonus, commission, vacation pay, or any other type of compensation.

J. Daniel Marr is a director and shareholder of Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and business persons on a variety of legal issues, including employment, and advocating on their behalf. You can reach Attorney Marr by e-mail at: dmarr@hamker.com

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