|March 24, 2014|
Previously published on March 20, 2014
The importance of drafting employment agreements carefully could not be more evident in the superior court case of Boesel v. Swaptree, Inc., where the court rejected a high-level executive’s ability to bring a claim under the Massachusetts Wage Act after his former employer delayed his bonus payments.
Boesel, Swaptree’s President, argued that Swaptree violated the statute when it failed to pay him his non-discretionary “Annual Bonus” in 2010 and 2011 in a timely manner entitling him to treble damages and attorneys’ fees. He claimed that the Bonus was earned on a pro-rated basis over the course of the year, that the bonus was intended to be part of his base salary, and further, that the parties had agreed before they entered into their employment agreement that the bonus was non-contingent.
The Court easily disposed of Boesel’s claim. First, it rightly noted that generally, bonuses constitute “wages” covered by the Wage Act only when they are non-discretionary and/or where they are subject to a contingency. As to the latter, bonuses that are contingent on the employee remaining with the company for a defined period of time do not qualify as a “wage.” Clearly, the Court found, given the language in the employment agreement, the “Annual Bonus” provided for that contingency and therefore, did not qualify as a “wage.”
In support of this conclusion, the Court found (1) that the parties had distinguished between “Annual Bonus” and “Base Salary,” making them payable at different junctures; (2) that term “Annual” in and of itself demonstrated a payment requirement upon a full year’s employment; (3) the agreement’s termination provision provided for a pro-rated Annual Bonus payout only under limited circumstances. The Court also ignored the supposed pre-contract agreements due to the presence of an integration clause in the agreement, which stated that the executed employment agreement superseded all prior understandings and agreements. It took into consideration the fact that Boesel had been represented by counsel throughout the negotiation and execution of the agreement and that he acknowledged that he had read and understood the final written agreement before executing it.
Boesel serves as a valuable reminder to MA employers of the importance of drafting their employment agreements in a clear and unambiguous manner, as trial courts will first look at the plain language of the contract to determine whether particular compensation constitutes “wages” under the Wage Act. As in Boesel, careful drafting can save a company not only payment of the compensation in question, but steep statutory penalties in the form of trebled damages and reasonable attorney’s fees and costs.