Massachusetts High Court Finds Wage Act Inapplicable to Retention Bonus

In Nunez v. Syncsort Inc., the Massachusetts Supreme Judicial Court affirmed that the Massachusetts Wage Act does not apply to retention bonuses, provided that such bonuses are not given “solely in exchange for [an employee’s] labor or services.” A retention bonus therefore is outside the Wage Act’s scope when it is in addition to an employee’s regular compensation and subject to contractual contingencies, such as a requirement that the employee remain employed in good standing through a specified date.

STATUTORY BACKGROUND

The Wage Act requires that “wages earned” in a given pay period be paid promptly (usually within six days following the pay period) and on a regular basis (weekly, bi-weekly, semi-monthly, or, for certain employees with consent, monthly). The Wage Act additionally requires that terminated employees receive all outstanding wages in full on the day of their discharge.

While the Wage Act expressly covers “holiday or vacation payments” and commissions that are both “definitely determined” and “due and payable,” it does not otherwise define the term “wages.”

Employers found to have violated the Wage Act are subject to severe consequences, including treble damages.

FACTS

Carlos Nunez executed a retention bonus agreement with his employer, Syncsort Incorporated (Syncsort), around the time his position changed from full time to part time. Under the terms of that agreement, Syncsort would pay Nunez a $15,000 retention bonus “in two equal tranches” in exchange for Nunez remaining employed with the company in good standing, with no additional reductions in his work schedule, through two separate retention dates.

After Syncsort paid Nunez the first tranche of his retention bonus, it notified him that his employment would end on the second retention date due to a reduction in force. Nunez remained employed until then, and Syncsort paid him the second tranche of his retention bonus eight days later.

Nunez sued Syncsort, alleging that the company’s failure to pay him the second tranche of his retention bonus on the day of his termination violated the Wage Act. The District Court entered summary judgment for Syncsort, concluding that, as contingent compensation, the retention bonus was not a “wage” under the Wage Act. The Appellate Division of the District Court Department affirmed, and the Massachusetts Supreme Judicial Court (SJC) granted direct appellate review.

DECISION

The SJC affirmed, finding that the retention bonus was not a wage. In so holding, the SJC explained that the Wage Act’s requirement that wages be paid on a regular basis illustrated that the Wage Act was meant to cover “ordinary payment . . . in exchange for labor or services.” The SJC further observed that commissions are the only form of contingent compensation expressly recognized in the Wage Act, and that state and federal courts have consistently declined to extend the Wage Act to other types of contingent compensation.

While Nunez argued that his retention bonus was “monetary remuneration . . . especially for labor or services,” the SJC rejected that understanding as “fundamentally flawed.” It explained that the retention bonus was meant to compensate Nunez not only for his work, but also for remaining with Syncsort during “a period of corporate uncertainty.” Further, because the retention bonus was conditioned upon Nunez remaining employed with Syncsort in good standing, his regular “labor or services” alone would not entitle him to payment. The SJC also highlighted that the retention bonus was separate from, and in addition to, Nunez’s normal salary. Altogether, because the retention bonus was “additional contingent compensation” “not made solely in exchange for [Nunez’s] labor or services,” it was not a wage under the Wage Act, and was thus subject only to the terms of the parties’ agreement.

In a concurrence, Chief Justice Kimberly Budd suggested that the key to whether a payment is a “wage” is whether it functions merely to compensate an employee for their typical work. Chief Justice Budd agreed that the existence of contingencies can help show that a payment does not do so and, therefore, is not a wage. However, she stated that, in the case at hand, the dispositive fact was that Nunez’s retention bonus was in addition to his normal salary.

KEY TAKEAWAY FOR EMPLOYERS

The SJC’s decision in Nunez should reassure employers that additional, contingent payments to employees are not wages, provided that they do not compensate employees solely for their labor or services.