Massachusetts: Court Finds Retention Bonus Not Wages Under MA Wage Act

By Meaghan Murphy - Skoler Abbott P.C.

September 25, 2024

Employers have long utilized retention bonuses (sometimes referred to as “stay” bonuses) to encourage employees to stay employed for a certain period of time, particularly when the job market is favorable to employees. While a retention bonus has the effect of supplementing an employee’s regular wages, most employers likely do not view it as part of the employee’s wages. In a recent decision, a panel of appellate judges answered a question that no other Massachusetts court had explicitly addressed:  whether a retention bonus promised to an employee falls within the definition of “wage” under the Massachusetts Wage Act (“Wage Act”). The panel said no, but that might not be the final answer to this question.

The name of the case is Nunez v. Syncsort Incorporated and the relevant facts are as follows: In May 2020, Carlos Nunez was hired as senior director of finance by Syncsort, a company doing business under the name Precisely. Four months after he was hired, Precisely and Nunez executed a retention bonus agreement providing that Nunez would be eligible to receive a $15,000 bonus, which amount would be split equally into two installments payable on November 18, 2020, and February 18, 2021. In order to receive the bonus payments, Nunez would need to remain employed by Precisely at his regular work schedule and remain in good standing through those dates. Nunez would also get to keep the retention bonus if Precisely terminated his employment without cause.

Nunez received the first $7,500 bonus payment without issue. In January 2021, Precisely informed Nunez that he was going to be terminated due to a reduction in force. It was not until February 18, 2021 (the same day the retention bonus agreement stated the second $7,500 payment would be made), that Precisely moved forward with Nunez’s termination. About a week later, Nunez filed a complaint alleging, among other things, that the failure to pay him the second $7,500 payment violated the Wage Act. The very next day, Precisely paid Nunez the second $7,500 payment.

Nunez remained in good standing until his termination and his work schedule never changed while he was employed. Neither of those issues were before the panel. Rather, the issue before the panel was whether the retention bonus constituted a “wage” under the Wage Act. If so, Precisely’s failure to pay it on February 18, 2021, would violate the Wage Act, thereby triggering the harsh penalties of treble (triple) damages and attorney’s fees and costs. Despite receiving the second $7,500 payment, Nunez continued to pursue the treble damages and attorney’s fees that the Wage Act provides for, which is why this case ended up before a panel of appellate judges.

At the outset of the decision, the panel noted that the Wage Act expressly includes holiday and accrued, unused vacation pay, as well as “commissions that are definitely determined and due and payable to the employee” in its definition of “wages.” The panel did not find retention bonuses similar enough to commissions to find that they fall within that definition. Instead, the panel reasoned that the categories of compensation “most akin” to retention bonuses had been addressed by the Massachusetts Supreme Judicial Court (“SJC”) in 2 earlier decisions and found not to constitute wages: Weems v. Citigroup and Mui v. Massachusetts Port Authority.

Weems considered whether a “bonus program” constituted wages. Under the terms of the deferred compensation program at issue in Weems, the monetary award was discretionary, so the SJC held that it did not constitute wages.

In Mui, the SJC addressed whether unused sick time fell within the Wage Act. The sick time in question in Mui provided for departing employees to be paid a certain percentage of their accrued, unused sick time if they had been employed for at least two years and had not been terminated for cause. The court thus viewed it as essentially a contingent bonus paid to separating employees for not having used all of their accrued sick time and not engaging in conduct warranting termination for cause. As a result, the sick time did not constitute wages under the Wage Act.

The Nunez panel then acknowledged the long line of cases where Massachusetts courts — including the SJC in Mui — have narrowly construed the term “wages” under the Wage Act, and, further, never broadly construed the Wage Act to include any types of contingent compensation other than “commissions that are definitely determined and due and payable to the employee.” Thus, relying on the plain language of the Wage Act, the panel ruled that the retention bonus was not a wage and does not fall within the protection of the Wage Act.

This is a welcome decision for Massachusetts employers, particularly in light of the SJC’s 2022 decision in Reuter v. City of Methuen, which we wrote about here. Applying the Nunez decision, allegations that an employer has failed to pay an employee a retention bonus will not be subject to the Wage Act’s treble damages or attorney’s fees penalties. Employees may, however, pursue an unpaid retention bonus under a different theory, such as a breach of contract or equitable claim, in which they could be awarded the amount of the retention bonus (no triple damages and likely no attorney’s fees). Of course, an employee’s likelihood of success would depend on the specific facts and circumstances.

It is important that employers are aware that this case is not binding on all courts in Massachusetts, so this issue is not exactly settled. Indeed, the attorney for the employee in this case has stated that he intends to challenge this decision. If you have any questions about retention bonuses or other compensation, please contact experienced labor & employment counsel.

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