Court rules wage law doesn't apply to bonuses

A state Supreme Court decision in a case involving a New London law firm is seen as benefiting employers who may be vulnerable to claims about unpaid bonuses.

In a decision published last week in the Connecticut Law Journal, the court found that a "discretionary" bonus - one whose amount is indefinite or "not ascertainable by applying a formula" - does not meet the statutory definition of wages. Therefore, an employer who withholds such a bonus cannot be found in violation of the state's wage law, which provides for stiff criminal and civil penalties.

Courts can require employers to pay twice the amount of unpaid wages as well as court costs and attorney's fees. An employer who fails to pay wages can also face a fine of up to $5,000 and up to five years in prison, or both.

The Supreme Court sided with The Reardon Law Firm, the defendant in a case originally filed in 1999. The plaintiff, Angelo Ziotas, an attorney who had worked for the New London firm headed by Robert I. Reardon Jr., sued the firm, claiming Reardon had breached a contract and violated state wage statutes by failing to pay him a year-end bonus after he left the firm in October 1998.

A Superior Court judge disallowed the statutory claim, and the case proceeded to trial on the breach-of-contract claim. In 2006, then-Superior Court Judge Dennis Eveleigh, who was recently appointed to the state Supreme Court, ruled in Ziotas' favor. Eveleigh ordered Reardon to pay Ziotas a $50,000 bonus as well as interest that upped the award to nearly $95,000.

When Reardon appealed to the state Appellate Court, Ziotas cross-appealed the lower court's removal of the statutory claim from the original complaint.

Ziotas, represented by New Haven attorney Anthony Fitzgerald, successfully argued that the lower court erred in concluding that the bonus portion of his compensation did not constitute wages.

The state Supreme Court reversed the Appellate Court on that point while affirming the lower court's ruling on the breach-of-contract claim. Ziotas' award, including interest, had grown to $120,000 by the time Reardon paid it last year, according to Ziotas.

Attorney William Gallagher of New Haven, who represented the Reardon firm, said the Supreme Court decision is "very significant" for small businesses.

"Basically, it says even if a bonus is part of an arrangement (between employer and employee), so long as it remains discretionary, it's not statutory," Gallagher said. "It's one thing to be required to pay a bonus, but to have it classified as wages and subject to a doubling of the amount and attorney's fees is punitive in nature."

He said employers will want to be more careful about how they structure bonuses in light of the decision.

Ziotas said the decision could "really harm" plaintiffs in future employment cases. "People are being paid under all kinds of structures," he said. "It will be hard for anyone who is not an hourly employee to keep an employer from wrongfully withholding wages."

Ziotas, 46, now works for the Stamford firm Silver, Golub and Teitell.

"I pursued it because of the principle involved," he said of the long-running case. "At the trial level, Judge Eveleigh found all the facts in my favor. I'm grateful for that."

Reardon referred questions to Gallagher.

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