Bonus Payment Excluded from Wage Act Claim

March 27, 2014

The Suffolk County Superior Court recently analyzed the Massachusetts Wage Act in a case involving the compensation package of a company's departing president. The case was complicated by the multiple and inconsistent compensation agreements the plaintiff and defendant company signed. At bottom, the court decided the issue of whether annual bonuses and vacation pay may be considered wages under the Wage Act. The court found that annual bonuses may not be considered wages under the Wage Act, but that vacation pay may be wages, provided that certain criteria are be met.

In Boesel v. Swaptree, Inc., the plaintiff brought claims the defendants under the Wage Act, for breached of fiduciary duties, and for interference with contractual relations. The plaintiff founded Swaptree, Inc. and served as its CEO until 2010. As part of an investment agreement, the plaintiff resigned as CEO, and accepted the position of president of the company. Upon accepting the position, the plaintiff entered into an employment agreement with the company that differed from the original agreement he had signed at the company's inception. The agreement provided that Boesel receive a certain salary, health and retirement benefits, paid vacations, and would receive compensation for unused vacation days. In addition, Boesel was to receive an annual bonus each year he worked for the defendant company, as well as a discretionary bonus based on his success as president. However, the company paid Boesel only his base salary, without bonuses or vacation time reimbursement.

The Wage Act requires employers to pay employees all earned wages on a weekly or bi-weekly basis. The courts have recognized that the purpose of this statute is to prevent employers from unreasonably withholding employees' earned wages. The Wage Act does not cover contributions to deferred compensation plans or severance pay, nor does it include a discretionary bonus or a bonus contingent on an employee remaining with a company for a certain period. However, the term "wage" does encompass vacation pay.

The plaintiff argued that the annual bonus under the employment agreement was not discretionary or contingent on his remaining with the company. He argued that the annual bonus was earned throughout the year and was payable on a pro rata basis for any part of the year he worked. The court disagreed, interpreting the contract as clearly and unambiguously providing that the bonus was contingent on continued employment.

Applying basic contract interpretation standards, the court construed its language pursuant to its plain, ordinary and usual meaning. As written, the agreement provided that the annual compensation was a certain amount, and that the annual bonus was a separate earning, outside the scope of the courts definition of "wage." There was no evidence that the bonus could be paid on a pro rata basis, nor was there evidence to counter the defendant's argument that the bonus was to be paid each year at the completion of one year of employment with the company. The intent of the parties was clear, insofar as it was clear to both the plaintiff and defendants that Swaptree, Inc. provided the bonus as incentive for the plaintiff stay with the company. The court allowed the plaintiff's motion with respect to his Wage Act claim for unpaid vacation only, not for the annual bonus.