Bonus for Specifics: Why Undefined Bonus Criteria Put Massachusetts Employers at Risk of Serious Penalties
Massachusetts employers should take a closer look at how they structure employee bonus plans. A recent state court ruling in Pres v. Sensys Gatso USA, Inc. serves as a cautionary tale. Vague or poorly defined bonus terms can result in those payments being considered “wages” under the Massachusetts Wage Act — a mistake that can carry mandatory treble damages and attorneys’ fees.
By way of background, the Massachusetts Wage Act (the Act) is known for its strict requirements for payment of “wages” and its automatic treble damages and payment of plaintiff’s attorney fees for violations. “Wages” generally include an employee’s earned salary, hourly pay, and certain commissions — amounts that are due in exchange for the employee’s regular labor or services. By contrast, contingent or discretionary compensation typically falls outside the purview of the Act, particularly where payment is conditioned on clearly defined criteria or continued employment through a specific date. But as Pres illustrates, simply labeling a bonus as contingent on “measured objectives” is not enough to keep it out of Wage Act’s purview.
Bonuses Without Clear Contingencies or Conditions May Be “Wages”
Pamela Pres was hired by Sensys Gatso USA, Inc. (SGU) in April 2021 as a Senior Accountant. Her written offer letter included an annual salary plus “four bonus payments totaling $9,000, against measured objectives.” SGU never defined “measured objectives” nor paid Ms. Pres any quarterly bonuses while she was employed. SGU nonetheless maintained that Ms. Pres’ bonuses were contingent and, therefore, were neither owed nor considered wages under the Massachusetts Wage Act.
The court concluded that, because SGU never defined the “measured objectives” tied to the bonuses, no clear contingency was ever created. Without such a condition, the bonuses were not discretionary — they were part of her regular compensation. In short, the unpaid quarterly bonuses constituted “wages” owed to Ms. Pres.
In reaching its conclusion, the court referenced the Massachusetts Supreme Judicial Court’s recent decision in Nunez v. Syncsort, Inc., which clarified the definition of “wages” under the Massachusetts Wage Act. In that case, the court held that the retention bonuses at issue were not “wages” because they were not paid solely in exchange for the employee’s regular labor or services. Rather, the bonuses represented additional compensation contingent upon the employee remaining employed through specific dates set by the company.
By contrast, in Pres, the court found that Ms. Pres’s quarterly bonuses were “akin to ordinary payment from an employer to an employee in exchange for labor or services,” as the bonuses did not depend on any requirement beyond the work she performed in her regular role. Accordingly, the court found that these quarterly bonuses fell squarely within the definition of “wages” as articulated in Nunez and as protected under the Massachusetts Wage Act.
Lessons for Massachusetts Employers
The decisions from Pres and Nunez highlight several important considerations for employers in the Commonwealth drafting bonus provisions.
First, be clear about contingencies. Provisions of contracts are often construed against the drafter, so, if bonuses are intended to be contingent, employers should clearly define and communicate — both verbally and in writing — the specific conditions that must be satisfied for the bonus to be awarded. References to “measured objectives” without detailing the specifics can create a risk that the bonuses would be considered owed and thus “wages” under the Wage Act. For contingent bonuses to fall outside the definition of “wages” under the Massachusetts Wage Act, the contingencies must be clear and tied to quantifiable targets or articulated performance standards, so that the reasons for awarding (or withholding) the bonus are defensible.
Second, employers should not shy away from offering discretionary bonuses, provided that they are truly discretionary. Discretionary bonus plans should be drafted in a manner that avoids any implication that payment is owed unconditionally.
Employers should consult with legal counsel to assess their risk and ensure compliance.
