Don’t Let a “Bonus” Become a “Wage” (Under the MA Wage Act)

As I have previously warned in prior blog posts here and here, the Massachusetts Wage Act exposes a company and individuals having management responsibility for the company to mandatory treble damages and attorneys’ fees for failing to pay wages.  Because the statute, however, does not define the term “wages,” employees have attempted to apply the Wage Act’s beneficial damages provision to any type of compensation.  A true “bonus” need not be wages and the failure to pay a bonus would then not subject an employer or its management to the risk of treble damages or attorneys’ fees.  Nevertheless, it is not always easy to determine if a particular payment is a bonus or wages.

A recent Massachusetts case, Boesel v. Swaptree, Inc., helped clarify the distinction between wages and a bonus.  Specifically, Boesel discussed three provisions in an employment agreement that can be used to clarify how the payment to an employee should be characterized:

  • Describe a bonus in a provision that is separate from the provision describing base salary.  In Boesel, the plaintiff argued that the discretionary bonus in his employment agreement was earned ratably over the course of the year and was part of his salary.  The court, having determined that the employment agreement was clear and unambiguous, determined that because the bonus was in a separate provision from the base salary, the bonus was intended to be potential additional compensation and not base compensation, i.e., wages, for Boesel performing his job duties.
  • Include a clear integration provision.  While Boesel argued that representations as to his compensation prior to the execution of his employment agreement was evidence that certain payments were wages, the court excluded such evidence because the employment agreement clearly stated that it “contains the entire agreement of the parties with respect to the terms and conditions of Executive’s employment…and supersedes any and all prior agreements and understandings… This Agreement cannot be changed or modified except by instrument in writing executed by [both parties].”
  • Describe the contingencies necessary for a bonus to be granted.  Interestingly, the Boesel Court determined that the ordinary meaning of “annual bonus” required the completion of the subject year of employment.  As a result, completion of the year of employment was a contingency required to be met for a bonus, as opposed to a wage, to be paid.  Additionally, the court implied that reserving the discretion to grant a bonus is a similar contingency that would indicate that the bonus is not a wage.

While other Massachusetts courts may reach a different conclusion given the same facts as were before the court in Boesel, it is important for in-house counsel to keep in mind that the foregoing factors are likely to be weighed in considering whether a certain payment is wages or a bonus.