In a victory for employers, the Massachusetts Supreme Judicial Court (SJC) recently held that retention bonuses are not considered wages under the Massachusetts Wage Act and are not required to be paid to employees on the same timeline as other forms of compensation under the Wage Act.
Background
Massachusetts Wage Act
The Massachusetts Wage Act requires employers to pay employees within a fixed period after each pay period. The Wage Act further provides that when an employee is terminated, the employer must pay the employee all the wages owed on the employee’s last day of employment. Employers that fail to comply with the law face some of the stiffest penalties in the country, including treble damages and reasonable attorneys’ fees.
The SJC’s Decision
In Nunez v. Syncsort Incorporated, the SJC considered whether retention bonus payments are “wages” within the meaning of the Wage Act. The plaintiff, Carlos Nunez, entered into an agreement with the defendant employer, Syncsort Incorporated, stating that he would receive two retention bonuses if he remained employed by Syncsort until two dates specified in his agreement. Nunez remained employed by Syncsort through the first specified date, and Syncsort paid his retention bonus 12 days later. Nunez also remained employed through the second specified bonus date but was laid off by Syncsort on that date as part of a reduction in force. Syncsort paid Nunez his second retention bonus eight days after his termination date. Nunez then sued Syncsort, alleging that it violated the Wage Act by not paying him his second retention bonus in a timely manner on his last day of employment.
In reviewing the case on appeal, the SJC noted that not all forms of employee compensation are “wages.” The Wage Act states that “wages” “are akin to ordinary payment from an employer to an employee in exchange for labor or services” but are otherwise undefined in the statute. While the Wage Act expressly recognizes commissions as “wages,” it does not expressly recognize other forms of contingent compensation as “wages.”
The SJC noted that Massachusetts courts have consistently held that other types of contingent payments that condition payment on some requirement beyond the labor the employee provides in exchange for compensation (i.e., severance pay, unused sick time) are not “wages.” The SJC further reasoned that the retention bonuses “were additional compensation that was contingent, or conditioned, on his continued employment to dates set by Syncsort to which the plaintiff agreed.” The retention bonuses were not solely in exchange for Nunez’s labor or services, and, therefore, Syncsort did not violate the Act by paying Nunez his retention bonus eight days after he was terminated.
Takeaways
This case clarifies that under Massachusetts law retention bonuses are not considered wages and thus are not subject to the requirements of the Wage Act. It also serves as a reminder for employers to familiarize themselves with the Wage Act to ensure compliance. Although retention bonuses are not wages, employers can be liable for treble damages and attorneys’ fees for failing to pay a Massachusetts employee their final wages on the date of termination.
If you have any questions about the SJC’s ruling or the Massachusetts Wage Act, please contact the authors of this article or any other attorney in Venable’s Labor and Employment Group.