New York Employment Lawyer Blog

Many New York bankers work hard all year for their bonuses. But some of those bankers don't get what they were expecting, and some get nothing. I recently met with a banker who was fired after working all year and the bank will not pay the bonus. Not fair for the banker, but is it illegal?

The law that applies to banker bonuses is pretty simple. It applies to non-bankers as well. The root of the issue goes to whether or not the parties agreed, expressly or implicitly, that the bonus would be paid. If the circumstances indicate that the banker and the bank both knew that the bonus would be paid at year end, then the banker may have the right to recover that bonus. In order to evaluate these claims, the following factors are typically considered:

- was the bonus a substantial part of the banker's total annual compensation?

- is there a pattern of paying the banker such a bonus?

- did the banker do anything that would justify non-payment of the bonus?

- did anything happen at the bank (like poor earnings) to justify non-payment?

These banker bonus disputes are handled by FINRA through arbitration. Typically a panel of arbitrators handles these matters and FINRA has a good record of treating bankers and banks fairly. If you have a question about a bonus dispute, please give us a call.

Bonus disputes in New York always arise soon after the new year. Most New York banks and financial firms start announcing bonuses this quarter. At our firm we always prepare for the calls from New York financial and wall street executives. This season we expect it to be worse than normal because the banks are predicting a cut back of 30% or more in bonus pay outs.

As I have written before, the first question to ask in a bonus dispute is whether the executive has a right to the bonus in the first place. In order to have a right to the bonus, the bonus must make up a substantial part of the compensation. For example, if a banker has a salary of 300K, but has received a bonus of 800K for the past four years, then that bonus is a substantial part of the bankers compensation. That is the first test - is the bonus a big part of the compensation package. If it is, then you might have a right to the bonus - otherwise you generally don't have a right to the bonus.

Next, if the bonus is a substantial part of the compensation package, then the inquiry moves to the payment history. Has this kind of bonus been paid in the past such that it is a reasonable expectation? In our example above, the 800K bonus was paid for the past four years - in that case the executive has a stronger claim than someone who only received such a bonus for one year.

Assuming that the bonus is a substantial part of the compensation and there is a history of such payments, then the case begins to look stronger. Then you move to the facts to see why the bonus was not paid this time - is there a reasonable and fair explanation for companies decision to withhold the bonus? Most companies have a fair amount of discretion but that discretion cannot be abused - fairness is required.
If the company abused its discretion, then an aggrieved executive may have the right to the bonus.

Bonus dispute cases in the financial industry are resolved via arbitration before FINRA. These matters can move along quickly and FINRA has a good reputation for treating parties fairly and there is a solid history of financial executives obtaining large recoveries in bonus dispute cases. We have handled many of these and if you have a question about your bonus, please give us a call for a free consultation.

The end of the year can be one of the more exciting times for a New York employee. In addition to paid holidays, a lighter work load and a slightly awkward but always entertaining holiday party, the end of the year is also when a lot of employees receive (or are at least informed of) their bonus. For certain New York employees and executives, a yearly or quarterly bonus represents a substantial portion of their paycheck.

With so much weighing on a bonus that is often categorized as discretionary, what happens when an employee quits or is fired before the much relied on bonus is paid? As you can guess, this is a contentious issue that is not always black and white.
The analysis in any employment bonus dispute case boils down to a simple question: was the bonus purely discretionary or an integral part of an employee’s compensation? If a bonus falls in the first category, the employer has the choice to pay or not pay a bonus. If the bonus falls in the second category, then failure to pay can be characterized as a breach of the employment contract.

With all the complications in classifications, it is easy to see how lawyers are often called in early to determine the nature of the bonus. Generally speaking, if an employee is paid a small base salary and a large bonus, then it is likely that the bonus is not discretionary.

If you were denied a bonus and are wondering if you have the right to recover that bonus, give us a call for a free case review.

Bonus disputes in the New York financial services industry are typically resolved by FINRA arbitration panels.   Often, the central issue in a FINRA bonus dispute case is whether the employer has absolute discretion to deny an executive his or her bonus.   Most financial service firms include language in their employee manuals and offer letters indicating that bonuses are purely discretionary.   In practice, however, FINRA arbitration panels and some courts have found that financial service firms do not have unfettered discretion to deny bonuses.

Financial Service Executives Can Recover Unpaid Bonuses

Under New York law, financial workers can bring bonus dispute claims.   Financial service employees can purse claims for breach of express or implied contract, violation of Article 6 of New York Labor Code, and quantum meruit for failing to pay earned bonuses.  Bonus dispute claims can involve large sums of money because highly paid Wall Street professionals typically receive a substantial part of their compensation as a bonus after the end of the year.

An Implied Limit on a Firm's Discretion to Set Bonuses

Even though most financial service firms state that they have absolute discretion in granting bonuses, FINRA panels often impose a duty of reasonableness.  Financial service companies cannot exercise their discretion in bad faith to deny an executive his bonus compensation.  A good reason for the denial of the bonus is needed as companies generally cannot deny bonuses just because the executive was fired or resigned.   For example, one court held that “it was an implied term of [the management’s] employment contract that the Bank would not exercise any discretion it had in relation to his bonus award irrationally or perversely.”

Another court considering a bonus dispute in the financial services industry held that a "reasonable inference can be drawn, from the contract language, that [the employer’s] discretion is not absolute, but rather limited by the terms of the contract" with respect to evaluating an executive's . . ."achievements of revenue goals and [the employer’s] ‘strategic objectives’ . . . . [W]hen read in context it might . . . be reasonable to infer, [from the employment agreement’s “discretion”-conferring language,] that once a bonus pool had been established for the year, [the employer] could only use its discretion to refuse a bonus based on plaintiff's failure of achievement within the established guidelines."

Bonus Payments are an Integral Part of the Financial Service Compensation Model

In the financial service industry, bonus payments are a key feature in an executive's compensation.  In many cases, an executives bonus is the biggest part of their annual income.   Because bonuses are so important in this industry, FINRA arbitration panels and courts narrowly construe and limit an employer's discretion in denying bonus payments because the bonuses are more like earned wages.   In bonus dispute cases, FINRA panels and courts will look at the parties course of dealing.  If there is a history of bonus payments based on the employee's performance, courts often examine the bonus history and try to apply a similar bonus formula for the time in question.   Also, FINRA panels and courts consider oral promises for bonus payments and they have held employers to their word.

If you were denied a bonus payment, you may have the ability to recover it even if you do not have a contract that provides for a bonus.  All you need is a prior history of bonus payments linked to your performance.  Also, if your employer refers you to language that gives the discretion to deny your bonus, don't believe it.  Their discretion is not absolute and you may well have the right to recover that bonus.   Feel free to give us a call if you questions about a bonus dispute.