In an opinion issued June 8, 2010, the Connecticut Supreme Court ruled in the case of Angelo A. Ziotas v. The Reardon Law Firm, P.C., that the Plaintiff’s claim for a contractually guaranteed bonus does not fall within the purview of the Connecticut Wage Act.

In this case, a former associate attorney sued his law firm for, among other things, a bonus to which he claimed he was entitled by virtue of a written contract executed with the former employer. The contract, which provided that the associate was an employee at will, also provided him with the right to a year-end bonus as a part of his compensation package. The amount of the bonus was, however, discretionary in nature based upon the judgment of the firm’s senior partner. The associate left the firm in the fall of 1998 and, when he did not receive a bonus in December 1998, sued for non-payment of what he claimed to be a contractually guaranteed bonus, in addition to other compensation.

In the action, he also sought to recover double damages and attorneys’ fees under the Wage Act, Section 31-72 of the Connecticut General Statutes. While the Trial Court struck the wrongful withholding of wage claim finding that the bonus under the circumstances of the case could not be considered “wages” within the meaning of the Wage Act, the Appellate Court overturned that ruling on appeal.

The Connecticut Supreme Court reversed the Appellate Court finding that a bonus which, although contractually promised, is completely discretionary in amount with the employer, does not constitute “wages” under General Statutes Section 31-71a(3). The Court reasoned that while the statute defining wages contemplates a direct link between the individual employee’s labor or services rendered and the compensation sought, that relationship is too attenuated if the amount of the bonus is discretionary and dependent on factors other than the employee’s performance.

The Court went on to say that although Section 31-72, the wrongful withholding statute, is remedial in nature, a violation of that statute can give rise to substantial criminal and civil penalties, including double damages, attorneys’ fees as well as potential fines and imprisonment. An interpretation of the term wages that would allow the imposition of such penalties when the amount of a bonus is indeterminate and discretionary would raise serious questions of fundamental fairness and due process.

The Court went on to distinguish cases in which the bonus at issue was ascertainable by application of a set formula.

The clear message to employers in this decision is that so long as they retain some measure of discretion in the determination of year-end bonuses, they will not be subject in a legal dispute over such bonuses to multiple damages, attorneys’ fees or any of the other remedies or penalties available to employees under General Statutes Section 31-72. Employers should revisit their existing bonus policies and, if appropriate, consult with legal counsel to determine how better to structure the bonus in a way that provides them some additional protection.

This is not about taking advantage of employees. A bonus is certainly one way to reward employees for a job well done and to allow them to participate in the financial success of the employer. However, revising a company’s bonus policy in light of the Ziotas case will provide the employer with protection from the potentially onerous financial burdens of the Connecticut Wage Act in the context of a legitimate dispute over an employee’s bonus.