Truelove v. Northeast Capital & Advisory, Inc.
738 N.E.2d 770, 95 N.Y.2d 220, 715 N.Y.S.2d 366 (2000)
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Rule of Law:
Under New York Labor Law § 190(1), discretionary incentive compensation that is contingent upon the employer's overall financial success and not directly tied to an employee's personal productivity does not constitute "wages." An employee's entitlement to a bonus is governed by the terms of the employer's bonus plan.
Facts:
- In June 1996, Northeast Capital & Advisory, Inc. hired William B. Truelove, Jr. as a financial analyst.
- Truelove's compensation plan included a $40,000 salary and eligibility to participate in a bonus/profit sharing pool.
- The bonus plan stipulated that a bonus pool would only be established if the firm met revenue targets, the CEO had sole discretion in allocating bonuses, and payments were contingent on continued employment.
- At the end of 1997, the CEO allocated a $160,000 bonus to Truelove, to be paid in quarterly installments.
- Northeast paid Truelove the first installment of $40,000.
- Shortly after receiving the first payment, Truelove resigned from his position.
- Following his resignation, Northeast refused to pay the remaining three installments of his bonus.
Procedural Posture:
- William B. Truelove, Jr. sued Northeast Capital & Advisory, Inc. in New York Supreme Court (the trial court of first instance) to recover the unpaid portion of his bonus.
- The Supreme Court granted summary judgment to Northeast.
- Truelove, as appellant, appealed to the Appellate Division (an intermediate appellate court).
- The Appellate Division affirmed the trial court's decision.
- The Court of Appeals (the state's highest court) granted Truelove leave to appeal.
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Issue:
Does an employee bonus constitute 'wages' under New York Labor Law § 190(1) when the payment is discretionary and contingent upon the employer's overall financial success and the employee's continued employment?
Opinions:
Majority - Levine, J.
No. A discretionary bonus that is dependent on the employer's overall financial success and not directly linked to the employee's personal productivity does not constitute 'wages' within the meaning of Labor Law § 190(1). The court reasoned that the statutory definition of wages as 'earnings of an employee for labor or services rendered' contemplates a more direct relationship between an employee's performance and the compensation. Truelove's bonus was a discretionary share of the employer's profits, not a direct payment for his labor. The court also held that an employee's right to a bonus is governed by the express terms of the employer's bonus plan. Because the plan explicitly conditioned payment on continued employment, Truelove forfeited his right to the remaining installments when he resigned.
Analysis:
This decision clarifies the scope of 'wages' under New York Labor Law, solidifying the distinction between non-discretionary earnings for direct labor and discretionary, profit-based incentive compensation. By excluding such bonuses from the protections of Labor Law article 6, the ruling grants employers significant latitude to impose conditions, like continued employment, on bonus payments. This precedent reinforces the principle that bonus plans are primarily contractual in nature, and their specific terms will govern an employee's entitlement, limiting statutory claims for unpaid bonuses that are discretionary or tied to overall company performance.
