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Massachusetts High Court Rules That Retention Bonuses Are Not "Wages" Under Wage Act

Last month, the Massachusetts Supreme Judicial Court (“SJC”) held, in Nunez v. Syncsort Incorporated, that a retention bonus contingent on an employee’s continued employment for a set period of time does not constitute “wages” under the Massachusetts Wage Act (the “Wage Act”).

The SJC’s decision is welcome news for employers, as it clarifies that retention bonuses are not subject to the harsh sanctions that employers can face for violations of the Wage Act.

The Massachusetts Wage Act

The Wage Act defines, in part, which types of employee compensation are considered wages and when wages must be paid to employees. For example, the statute specifies that “wages” include any holiday or vacation payments due an employee, as well as sales commissions that have been “definitely determined” and have become “due and payable.”

Under the Wage Act, Massachusetts employees who are involuntarily terminated must be paid their full wages on or before their last day of employment. If an employee voluntarily separates from the employer, the employee’s final wages must be paid on the employer’s next regular payday.

Violations of the Wage Act can expose an employer to significant penalties, including mandatory treble (i.e., triple) damages and attorneys’ fees.

Case Background

The plaintiff, Carlos Nunez, was hired by Syncsort Incorporated in 2020 as its full-time Senior Director of Finance. The company was transitioning through a merger at the time of Nunez’s hiring.

Shortly after he was hired, Nunez entered into a Retention Bonus Agreement with Syncsort. The Retention Bonus Agreement offered Nunez a total of $15,000, payable in two tranches, if he remained employed in good standing until two specified dates in November 2020 and February 2021.

Nunez received the first retention bonus payment in November 2020. In February 2021, just as he was slated to receive the second payment, Nunez was laid off. Syncsort then paid him the second part of the retention bonus about a week later.

Subsequently, Nunez sued Syncsort under the Massachusetts Wage Act, asserting that he was entitled to treble damages because the second bonus payment was not made on his final day of employment, as required by the Wage Act.

The parties each moved for summary judgment, and a state District Court judge ruled in Syncsort’s favor, finding that the Retention Bonus Agreement did not fall within the Wage Act. The Appellate Division affirmed the decision, and Nunez then appealed to the SJC.

SJC’s Decision

In a unanimous decision, the SJC affirmed the lower courts’ dismissal of Nunez’s Wage Act claim.

While acknowledging that the Wage Act is intended to ensure that employees receive prompt payment of wages, the Court stated that not all forms of compensation are considered “wages” under the Wage Act. In particular, the SJC noted that prior Massachusetts court decisions have excluded other forms of contingent compensation, such as severance pay, discretionary bonuses, and stock options, from the definition of “wages” under the Wage Act.

The SJC concluded that this principle extended to the retention bonus payments at issue in the Nunez case, as those payments were contingent upon the plaintiff’s remaining employed in good standing through the specified dates.

Recommendations For Employers

Based on the Nunez decision, we suggest that Massachusetts employers:
 

• Clearly document retention and other contingent bonuses. Employers should review their existing bonus programs, plans, and agreements to make sure their bonus structures are clear. In particular, employers that offer retention or other contingent bonuses should make sure their bonus documents explicitly define the conditions the employee must meet (such as remaining employed in good standing through a designated date) and specify that the bonus amounts are distinct from regular compensation.

• Educate employees. While the SJC ruled in the employer’s favor, the Nunez decision serves as a reminder of the harsh penalties entailed by violations of the Wage Act. It is vital that supervisors, HR personnel, and payroll employees be aware of the statute’s requirements, particularly regarding final pay for employees who are terminated involuntarily.

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If you have questions about the SJC’s Nunez decision or any other aspect of the Massachusetts Wage Act, please feel free to reach out to one of our experienced labor and employment attorneys.