Commissions and bonuses: notes for lawyers

An open question: pay withheld before August 19, 2021

The issue. Before the No Wage Theft Loophole Act, the First Department held that "a wholesale withholding of payment is not a ‘deduction’" under Labor Law § 193. It also holds that the Act does not apply retroactively, so a § 193 claim for pay withheld before August 19, 2021 is dismissed there, and there is no separate cause of action under § 198(3) (Fisher). Wage claims run six years, so the question stays live for older pay until about August 2027.

For the employee. The Act’s own findings call it a "remedial amendment" and say its purpose is to clarify that "the unauthorized failure to pay wages, benefits and wage supplements has always been encompassed by the prohibitions of section 193," citing Ryan as "correctly holding" that an employer’s failure to pay a wage violated § 193 (L 2021, ch 397, § 1). The Act was to "take effect immediately." Under the Court of Appeals’ test, a statute that corrects an unintended judicial reading and clarifies what the law was always meant to say is given retroactive effect, and the Fourth Department so held, expressly departing from the First (Hernandez). If the findings are right, retroactivity is not even needed: § 193 always reached nonpayment. That is how the Second Department has treated it, sustaining a § 193 claim for withheld pay on 2017 facts without mentioning the Act (Okeke).

Against. Retroactive operation is disfavored, and a statute applies prospectively unless its language expressly or by necessary implication requires otherwise. The Act says nothing about past or pending claims, and "take effect immediately" is not alone determinative. A later Legislature’s statement of what an earlier statute meant does not bind the courts that construed it. The First Department has held the line in a series of decisions from 2023 through 2026.

Where it stands. Split. The First Department says no; the Fourth Department says the Act is retroactive; the Second Department reaches the employee’s result on the statute as it stood. There is no Court of Appeals decision, and because the affected claims age out in 2027, there may never be one. See which court decides my case.

Our view. The findings do more than attach a remedial label. They name the reading being corrected and name the 2012 decision that got it right. That is a clarifying amendment in the strictest sense, and the better reading — the Second Department’s — is that § 193 always reached the nonpayment of earned wages, with retroactivity as the fallback. In practice: where venue permits, file older-pay claims outside the First Department. In the First Department, where the pre-Act pay was withheld outright rather than deducted, plead the contract claim and look to the contract for fees, because the Article 6 fee-shifting claim will not survive.

Pleading an unpaid bonus or severance claim

• Plead the contract and Article 6 together. Labor Law wage claims can be brought alongside a breach of contract claim, but not for pay the employee had no enforceable right to. Disputes about the employer’s calculation, or whether the firing was for cause, are not grounds for dismissal on the pleadings (Neu).
• Executives are covered. The § 198-c(3) exclusion for executives earning more than $1,300 a week limits only that section’s criminal penalties. It does not bar a civil claim under §§ 193 and 198, and earlier First Department decisions applying it are confined to pre-Act claims (Patel).
• Severance under a separation agreement is a wage supplement. Unpaid severance supports a §§ 193 and 198 claim with fees and liquidated damages, not just a contract claim (Patel).
• Group claims. Where a § 193 claim is stated, it is premature to dismiss the class allegations on a pre-answer motion for failure to meet the CPLR 901(a) prerequisites (Okeke).

Retaliation for complaining about a bonus

A complaint that a bonus was unlawfully withheld is protected activity under § 215, and it need not cite the statute. In Neu, a notice of resignation subject to cure, which called the bonus "formulaic and a nondiscretionary wage," qualified; a firing less than a month later raised an inference of retaliation. When a client is about to push for an unpaid bonus, put the complaint in writing, and put it in wage terms.

Proving it: the summary judgment record

• § 193(5) removes a defense, not the burden. The employee still has to prove the wage was owed. The employees’ own motion for summary judgment failed where they submitted no "pay stubs or any salary agreement" showing what was withheld (Ramirez).
• Undefined formula terms go to trial. Where a compensation agreement paid a percentage of "net income" without defining it, the employee could not win summary judgment unless his reading was the only one fairly available. But the employer also bears the burden of showing that the parties agreed to a downward adjustment before calculating the commission, and it could not do that as a matter of law either (Hernandez).

When the damages window closes

• Staying after notice can end the claim going forward. An at-will employer may change pay terms prospectively, and an employee who keeps working after learning how commissions are calculated is deemed to have agreed to that method. In Hernandez, liability ended on the day the salesperson received the spreadsheet showing the employer’s 30% "keep" (see also Gebhardt). Once the client knows how the pay is being computed, the damages period may be closing, so move promptly.
• The contract claim accrues at breach, not discovery. CPLR 203(g) does not apply, so an employee who did not know about an underpayment for years still loses the years outside the six-year period (Hernandez).
• Count the COVID toll. The 2020 executive orders tolled the six-year periods for both the contract claim and the § 198(3) claim, which pushed the recoverable period back from August 2014 to March 20, 2014 in Hernandez.
• A bonus claim accrues when the bonus was due. For timeliness, the claim accrues on the plan’s scheduled payment date (Hall).

Wage statements

A pay statement that shows a commission was paid satisfies § 195(3) even if it does not give the employee everything needed to recompute it. Whether an undisclosed reduction was a "deduction" that had to be listed is a question of fact (Hernandez).

Guaranteed and discretionary bonuses

• Get the handbook early. An oral promise of a guaranteed bonus was enforced despite at-will acknowledgments, where the handbook said nothing about bonuses and disclaimed contractual effect; the Statute of Frauds did not apply (Ryan). A handbook that expressly makes bonuses discretionary is a different case.
• Clear discretion over the amount is enforced. Customary practice cannot be read in to override it (Namad), and performance criteria in the plan do not limit it (Hunter). Vesting conditions in a written plan control (Hall).
• "Sole discretion" does not displace the implied covenant. After 111 West 57th, a grant of sole discretion must still be exercised in good faith, subject to the grant’s terms and a carve-out for discretion to terminate. No court has yet applied it to pay, and the burden is heavy. Plead the facts that make the exercise arbitrary or retaliatory, not just the result.

For the good-faith defense to liquidated damages, see the open question at the end of the W-2 guide.