Bonus Disputes: A Guide for New York Financial Executives
New York Bonus Disputes in the Financial Industry
Large bonuses awarded in the financial industry are often the subject of headlines, with the Washington Post recently reporting an average Wall Street payout of $184,220 in 2017. However, while the media focuses its coverage on these climbing earnings and the political implications behind them, less attention is paid to instances where financial employees are denied such sums. However, such cases are frequently the cause of disputes between employers and professionals in the financial service industry. When New York bonus disputes arise, they are arbitrated before a Financial Industry Regulatory Authority (FINRA) panel. The Ottinger Firm has been handling bonus disputes cases since 1999.
How New York Bonus Disputes Arise
For most financial industry professionals, a large portion of annual compensation comes from bonuses paid, usually after the end of the calendar year. New York bonus disputes arise when an employer refuses to pay a bonus after an employee resigns or is terminated before the time bonuses are distributed. Many factors may add to the ambiguity about what is owed; the dispute may involve a promise that was orally made, the bonus agreement may have been implied rather than explicitly expressed, or the bonus amount may have been variable based on the performance of the individual employee or his or her division. Still, decisions by FINRA panels and New York courts suggest that an employee may be entitled to recover withheld bonus amounts from their employers through breach of express or implied contract claims, through equitable relief, or based on statutory grounds.
New York Bonus Disputes: Recovery Under Breach of Contract
Caselaw such as Harden v. Warner Amex Cable Communications, articulates the longstanding principle that an employer is obligated to make good on its promise to pay an employee’s bonus when that bonus is offered as an “integral part” of the employee’s compensation package. 642 F Supp 1080, 1096 (S.D. N.Y. 1986). Further, an employer may not withhold this compensation just because the professional is no longer employed with the company at the time bonuses are paid out. Id. at 1077. New York courts have also made it clear that oral agreements are enforceable and that an implied contract can be presumed from the conduct and course of dealings between the employer and employee, even when an agreement is not made explicit. See Mirchel v RMJ Sec. Corp., 205 AD2d 388, 389 (N.Y. 1994). If an agreement between employer and employee does not explicitly state the exact amount to be paid, a court may determine an appropriate amount based on reasonable guidelines, such as the employee’s past bonus history. Giuntoli v Garvin Guybutler Corp., 726 F Supp 494, 507, 508 (S.D. N.Y. 1989). Given these court rulings, an employee may have a claim for breach of contract against an employer for withholding a bonus if that bonus was guaranteed as compensation for employment.
New York Labor Statutes
§ 193 of New York Labor Law prohibits employers from making any deductions from their employees’ wages, with the statute defining wages as “the earnings of an employee for labor or services rendered.” Labor Law § 190 . Under this definition, an employee’s compensation requires a connection to his or her “labor or services,” to be considered wages. Courts, therefore, do not view bonuses as falling under the definition of wages if the bonus is not directly related to the employee’s performance. Truelove v. Ne. Capital & Advisory, Inc., 95 N.Y.2d 220, 224 (N.Y. 2000). However, the Truelove standard leaves the door open for courts to find that bonuses can constitute wages when the bonuses are more directly linked to work performance. The New York Court of Appeals recently affirmed a decision that refused to dismiss an employee’s claim against his employer for refusing to pay his bonus, where the language of his employment agreement suggested that payment of the bonus was predicated on the employee’s productivity. Kolchins v Evolution Mkts., Inc., 2018 NY Slip Op 02209 (N.Y. 2018). Such bonuses could be considered wages under § 193, and they would not be subject to forfeiture. Id.
Along with breach of contract claims, employees may try to resolve New York bonus disputes through equitable claims such as quantum meruit and unjust enrichment. See Mirchel, 205 AD2d at 390. Under the quantum meruit theory, an employee may try to recover the reasonable value of his or her services so that the employer does not get an unfair advantage at the expense of its employees. However, if an employee receives a fair base salary for employment, a court may determine that additional bonus recovery is unnecessary. See Levion v Societe Generale, 822 F. Supp. 2d 390, 405 (S.D. N.Y. 2011).
While employers are responsible for paying bonuses they’ve promised as part of an employee’s earned wages, they may refuse to pay a bonus if the employment contract or the company’s written policies indicate that bonuses are discretionary. For example, courts have dismissed breach of contract claims where a company’s employee handbook explicitly stated that bonuses are to be given at the employer’s discretion. See Buckman v Calyon Sec. (USA), Inc., 817 F.Supp.2d 322, 338 (S.D. N.Y. 2011). However, courts may not assume a discretionary policy where none is explicitly written; vague language in a company’s written rules or handbook may preclude an employer from prevailing in its assertion of a discretionary bonus policy. Ryan v Kellogg Partners Inst. Servs., 19 NY3d 1, 12 (N.Y. 2012).
Cases brought through FINRA arbitration, however, are not strictly subject to the Buckman and Ryan holdings mention above. Executives litigating New York bonus disputes before FINRA arbitration panels tend to fare better than those who proceed court.
Financial industry employees are entitled to the compensation promised to them by their employers. When an employer denies a bonus to its former employee, that employee may seek recourse through a variety of means. However, employers can take steps to avoid such disputes with precise policies and written rules that provide employees with candid guidance on whether their bonuses are guaranteed or discretionary.