Retention Bonus Found Not to Constitute ‘Wages’ Under the Massachusetts Wage Act

Quick Hits

• A Massachusetts appellate court found that a retention bonus did not constitute “wages” within the definition of that term set forth in the Massachusetts Wage Act.
• The court acknowledged that there are no Massachusetts cases that have held that a retention bonus is a “wage” within the meaning of the Massachusetts Wage Act.
• The court noted that the Massachusetts Supreme Judicial Court has not construed the Wage Act to include any types of contingent compensation other than commissions and that even commissions only qualify as wages under the act when they “are definitely determined and due and payable to the employee.”

Factual Background

Syncsort Incorporated’s predecessor, which did business under the name “Precisely,” hired Carlos Nunez in May 2020. Later that year, the parties executed a retention bonus agreement under which Nunez would be eligible for a $15,000 bonus to be paid in two equal installments, one due on November 18, 2020, and the other due on February 18, 2021. Under the terms of the agreement, however, the bonus payments would be due only if he “(1) remain[ed] employed at the company at his regular work schedule; and (2) remain[ed] in good standing through and by the designated retention dates” (i.e., November 18, 2020, and February 18, 2021, respectively). The agreement also stated that “Nunez would not be required to return the retention bonus if Precisely terminated his employment without cause.”

Precisely paid Nunez the first installment of the bonus, in the amount of $7,500, on or about November 30, 2020. In January 2021, however, Precisely notified Nunez that it was terminating his employment due to a reduction in force. Nunez’s last day of employment with Precisely was February 18, 2021, and he remained employed in good standing with no reduction in his work schedule through that date. Precisely did not pay the second installment of the retention bonus on Nunez’s last day of employment.

On February 25, 2021 (i.e., one week after his employment had ended), Nunez filed a complaint in the district court alleging that Precisely’s failure to pay the second installment of the retention bonus violated the Wage Act. The following day, the employer paid Nunez the second installment of the retention bonus. Because the Wage Act requires the employees who are discharged from their employment to be paid all wages owed to them on the “day of discharge”—and in light of the Massachusetts Supreme Judicial Court’s (SJC) decision in Reuter v. City of Methuen that employers are strictly liable under the Wage Act for treble damages (plus reasonable attorneys’ fees) if they fail to make final wage payments within the time required by the statute—Nunez’s claim for multiple damages and reasonable attorneys’ fees on the late-paid amount survived the February 26 payment, and hinged on whether the retention bonus constituted a wage under the Wage Act. The parties filed cross-motions for summary judgment on that issue, and the district court ruled (in favor of Precisely) that the retention bonus was not a wage under the act, and thus that Nunez was not entitled to multiple damages and attorneys’ fees in connection with the allegedly late payment. After filing an unsuccessful motion for reconsideration of that ruling, Nunez filed an appeal to the appellate division.

The Court’s Decision

In reviewing the decision in favor of Precisely, the appellate division noted that the question presented by the appeal—whether the retention bonus constituted a wage—was a question of statutory interpretation. To answer that question, the court examined the text of the Wage Act and noted that it does not include an explicit definition of the term “wages,” but it does state that certain specific types of compensation—i.e., holiday pay, vacation pay, and commissions that are definitely determined and due and payable—do qualify as “wages.”

The court then addressed the case law relevant to the question and noted that no Massachusetts court has held that a retention bonus is a “wage” and that the SJC had held (in Mui v. Massachusetts Port Authority (2018) and other decisions) that “categories of compensation that are most akin to a retention bonus” were not “wages” under the act. In a prior case, the court noted, the SJC had addressed whether bonuses paid under a “bonus program” constituted wages under the statute and determined that they did not because the monetary awards at issue were discretionary per the terms of the program at issue. In Mui, similarly, the SJC held that because the accrued sick time payments were payable only if certain conditions were met under the employer’s policy, and that the dispute between the parties as to whether the plaintiff had satisfied those conditions “could not have been resolved within the required time frames set forth in the Wage Act,” the payments were not wages.

Applying the principles of Mui and other decisions to the facts before it, the appellate division in Nunez likened the retention bonus to the contingent compensation in Mui, as both were payable only if certain pre-specified conditions were met. Although the Nunez court noted that, unlike in Mui, there was no dispute that Nunez had been employed in good standing on the date that the bonus was due, it concluded that the retention bonus did not constitute wages, relying on the “long line of case law where our appellate courts—including the Court in Mui—have narrowly construed the term ‘wages‘ under the act,” as well as the SJC’s “acknowledgment in Mui that it has never broadly construed the Wage Act to include any types of contingent compensation other than ‘commissions’” that meet the act’s specified requirements.

Key Takeaways

The appellate division’s decision in Nunez is helpful to Massachusetts employers in two ways. First, and most obviously, it provides authority for the proposition that retention bonus payments are not wages under the Massachusetts Wage Act. Second, it provides further support for the argument that the Wage Act, including, in particular, its definition of “wages,” must be construed narrowly. Both propositions are important to Massachusetts employers seeking to navigate the Commonwealth’s complex wage laws and to avoid incurring the steep penalties, including automatic treble damages and attorneys’ fees, that can result from even inadvertent violations of the Wage Act.

Ogletree Deakins’ Boston office will continue to monitor developments and will provide updates on the Massachusetts and Wage and Hour blogs as additional information becomes available.

Follow and Subscribe

LinkedIn | Instagram | Webinars | Podcasts