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Don't Overlook That Bonus, Even After You've Left Your Firm
rokers and others (such as traders, money managers and investment bankers) usually expect a year-end bonus. Often the year-end bonus is a large part of their overall compensation. But what happens when a Wall Street professional's employment is terminated in advance of bonus season?
To the surprise of many observers, it still may be payday. In fact, a big
payday. Recently, two separate securities arbitration panels awarded damages for unpaid bonuses in amounts of over $2 million. Two other separate securities arbitration panels awarded damages for unpaid bonuses in amounts of about $1.5 million.
Wall Street employees have been awarded these sums as an element of back pay, based upon numerous causes of action. These include: breach of contract (oral or written), breach of implied contract, unfair business practices, breach of duty of good faith and fair dealing, fraud and/or negligent misrepresentation, unjust enrichment and quantum meruit (meaning "as much as he deserves").
What is required to prove entitlement to an unpaid bonus? To answer that question, we examined arbitration awards and court decisions. We found that the awards and decisions are not consistent. We also found that many awards and decisions are decided in favor the employer firm. Finally, we found that the law varies from state to state. Nonetheless, and based upon all of matters reviewed, one can make several important observations that brokers should note.
First, is the bonus an integral part of the compensation package? It needs to be in order to recover. One federal court in New York denied a bonus claim, observing that the bonuses that had been paid previously "had not been mandatory, and that plaintiffs did not receive a bonus in each year of their employment".
Second -- and closely related to the first requirement -- is the bonus a non-discretionary element of the compensation package? It needs to be in order to recover. One federal court in Missouri, in not awarding the bonus, stated, "The Court is of the opinion that the plaintiff is not entitled to a Christmas bonus since this is optional with management, depending on the work performed by its employees".
Third -- and closely related to the first and second requirements -- were there any contingencies associated with payment of the bonus or the amount of the bonus? It is clear that when a court or arbitration panel deems either the payment of the bonus or the amount of the bonus to be too speculative, the employee will not recover. However, it also is clear that a modest degree of speculation will not bar recovery of the unpaid bonus.
Two examples illustrate. In a recent arbitration award, the employee alleged that the unpaid bonus was designed as wages to compensate him for his performance associated with a specific transaction. This "pay", in the form of a bonus, was deferred because the firm's receipt of the proceeds from the transaction also was deferred. Hence, the only contingency associated with payment of the bonus was the firm's receipt of the funds in question. Once the firm received the proceeds, the bonus was due. The arbitration panel agreed with these arguments in ordering that the firm pay the bonus.
Indeed, a federal court in New York permitted even greater speculation in a case involving age discrimination. In that case, the employees alleged that they had not been promoted due to their age. The employees observed that had they been promoted, they might have been entitled to a bonus, which was designed to award sales personnel for attaining quota.
Of course, because these employees were not promoted, it clearly was speculative for them to argue that they would have attained quota. It followed that it clearly was speculative as to whether they would have received the bonus.
Despite that speculation, the court found that the employees were entitled to be paid their bonus. In so finding, the court simply assumed that the employees would attain quota. Next the court had to decide how much of a bonus the employees deserved. The court's task was made easy given the fact that the employer paid the same bonus to all employees with the same salary grade in the same region.
As one can see, brokers and others may be entitled to receive a bonus even if they have been terminated in advance of bonus season. The critical facts are that the firm's payment of the bonus: 1) is an integral part of compensation; 2) effectively is non-discretionary; and 3) is not overly speculative as to payment or amount.
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Sponsored by James J. Eccleston, an attorney representing stockbrokers, financial planners and
investors nationwide in arbitration, litigation and regulatory matters, and a shareholder with the law firm
Shaheen, Novoselsky, Staat, Filipowski & Eccleston
P.C.(www.snsfe-law.com). This Web site contains material
of general interest. It is neither intended to, nor constitutes, either legal advice or investment advice.
Always consult an attorney and/or investment advisor when building and protecting your wealth.
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