The Louisiana Court of Appeal, First Circuit, in DiVittorio v. Seale & Ross, PLC, affirmed a trial court’s judgment in favor of associate attorneys, granting them certain bonus compensation but denying another bonus claim. The appellate court held that the trial court had correctly ruled that the former associate attorneys earned their production bonuses, which were improperly withheld in bad faith. The court also ruled the associates were properly denied an origination bonus. The key issue was whether the entitlement to each bonus was discretionary.
Plaintiffs Frank DiVittorio, Jennifer Lee, and Elsbet Smith were employed by Seale & Ross, PLC, as associate attorneys until they resigned in December 2016. On January 19, 2017, the plaintiffs emailed Seale & Ross to request compensation they alleged was due for work performed while employed by the law firm. The emails each made reference to a formula used by Seale & Ross to compute such compensation for associate attorneys. Specifically, the plaintiffs claimed that they were each due two types of bonus compensation: (1) an origination bonus—amounts earned from cases originated with each attorney; and (2) a production bonus—calculated based on fee collections in relation to a goal. The plaintiffs filed suit against Seale & Ross for unpaid wages, penalties, and attorneys’ fees and costs on December 4, 2019. They asserted that Seale & Ross’s refusal to pay the bonuses violated the Louisiana Wage Payment Act (LWPA), Louisiana’s final paycheck law.
The LWPA provides, in relevant part, that “[u]pon the discharge of any laborer or other employee of any kind whatever, it shall be the duty of the person employing such laborer or other employee to pay the amount then due under the terms of employment … on or before the next regular payday or no later than fifteen days following the date of discharge, whichever occurs first.” An employer that violates the LWPA will be “liable to the employee either for ninety days wages at the employee’s daily rate of pay, or else for full wages from the time the employee’s demand for payment is made until the employer shall pay or tender the amount of unpaid wages due to such employee, whichever is the lesser amount of penalty wages.”
A trial of the matter was held on March 31, 2021, and a hearing on attorneys’ fees took place on July 19, 2021. On September 13, 2021, the trial court entered its judgment, ruling that plaintiffs’ origination bonuses were discretionary and therefore not “earned” wages. The court further held that plaintiffs’ production bonuses were nondiscretionary wages that were improperly withheld by Seale & Ross. The trial court therefore awarded the following amounts to the plaintiffs: (1) Elsbet Smith: $12,828.42 in production bonus wages and $39,961.80 in penalties; (2) Frank DiVittorio: $3,516.78 in production bonus wages and $38,399.40 in penalties; and (3) attorneys’ fees of $48,862.50 for all three plaintiffs, as well as judicial interest owed. Jennifer Lee was not awarded any amounts for origination or production bonuses.
The trial court found that the origination bonus claimed by the plaintiffs was paid on a discretionary basis, as the attorney compensation system of Seale & Ross stated that the bonus “may” be paid to associate attorneys at the end of the year. Thus, such amounts did not qualify as a “wage” under the LWPA. However, the trial court found that the production bonus was a nondiscretionary amount as defined by the LWPA because it was payment for work done by each attorney that the attorney would reasonably expect to receive at the end of the year. Finally, the trial court held that Seale & Ross withheld the production bonus in bad faith because another attorney who left employment the same year as the plaintiffs was paid the production bonus, while the plaintiffs were not.
The First Circuit’s Ruling
The appellate court ruled that “we do not find the trial court manifestly erred in its determination that the production bonuses were actually wages.” In part, the court relied on the fact that the production bonuses were paid out based on a formula. The production bonus, the court explained, “would be paid at 110% of the difference between the amount of collections the attorney agreed to produce at the beginning of the year and the amount of collections that the attorney actually produced at the end of the year.” Thus, the production bonus considered an attorney’s actual production and essentially recalculated his or her salary. Consequently, the First Circuit concluded that the production bonus was based on actual work performed, making it a nondiscretionary wage payable under the LWPA. With respect to the trial court’s denial of the origination bonuses to plaintiffs, the appellate court found that the trial could did not commit “manifest error” and that the origination bonuses were “wholly discretionary” and therefore not a “wage” as defined by the LWPA.
The court further rejected the law firm’s argument that they did not have to pay the attorneys’ production bonuses because they resigned before the end of 2016. The court largely ignored the law firm’s argument that the employees needed to be still employed at the time of payout to be entitled to the production bonus—a so-called “present to win” provision, a common feature of a bonus plan. Instead, the court found that “[t]he record is abundantly clear that production bonus wages were determined by collections made throughout the year; therefore, a production bonus wage was typically not paid until January of the following year.” The court held that despite the timing of the payout, the production bonus was related to work done in 2016 and was “due and owing” to plaintiffs when they quit in December 2016.
The First Circuit also upheld the trial court’s determination that Seale & Ross had withheld the production bonuses in bad faith. Seale & Ross argued that it did not pay “discretionary bonuses” in 2017 for work performed in 2016 due to “cash flow issues,” but the court found that the law firm’s actions were “arbitrary and unreasonable.” The court found it crucial that another former employee was paid in 2017 for work performed in 2016 after he departed the firm, while the plaintiffs were not. The firm did not explain why the one attorney was paid the production bonus while the plaintiffs were not. Under the LWPA, if an employer has a nonarbitrary reason for not paying wages at separation it may avoid an award of penalties even if it is ordered to pay the wages and attorneys’ fees.
The court addressed some technical issues about the formula for calculating penalty wages. It also affirmed the attorneys’ fees awarded below and awarded additional fees to plaintiffs because they prevailed on appeal.
DiVittorio indicates that under the LWPA, bonuses that are tied to work performed by an employee cannot be discretionary. Moreover, the decision reinforces the idea that employers that award bonuses to employees based on individual production may want to make sure that they pay out these bonuses in a consistent fashion, even after an employee has left the company. The fact that Seale & Ross paid a bonus to another employee but failed to do so for the plaintiffs, was crucial to the court’s determination that the plaintiffs were entitled to penalties. As a result, the plaintiffs obtained penalties and attorneys’ fees for the law firm’s failure to pay the owed amounts.
The good news takeaway for employers centers on the origination bonus. Because the decision on the origination bonus was discretionary, the court upheld the law firm’s denial decision. Based on the court’s reasoning, employers may want to have a written bonus plan that vests them with discretion about the decision and amount of a bonus for employee activity (such as bringing business to the firm) that, strictly speaking, does not qualify as compensable work.