In executive compensation disputes, an executive can gain substantial leverage if the subject compensation, typically a bonus, can be classified as "wages" within the meaning of NY Labor Code section 190(1). If the bonus constitutes "wages," then the bonus is protected against any meddling by the employer and must be paid in full pursuant to section 193 of the Labor Code. In New York, and most other states, wages are protected and must be paid promptly.
New York defines wages as "the earnings of an employee for labor or services rendered, regardless of whether the amount is determined on a time, piece, commission or other basis." This definition sounds wide open and surely seems to cover most bonus plans as bonuses are certainly "earnings for labor or services rendered." See section 191(1). But this language has been read to exclude certain "incentive compensation" that is paid as profit sharing or as earnings that are contingent on the financial performance of the business.
The courts in New York have held that a bonus will be deemed wages only if the bonus compensation is directly linked to the executive's own performance. However, if the bonus compensation is based on other factors such as the financial success of the business enterprise or based on other discretionary factors, then the bonus is "discretionary compensation" and therefore does not constitute wages under the Labor Code. See Truelove v. Northeast Capital & Advisory, Inc. 95 N.Y.2d 220 (2000). But this does not mean that the bonus claim is lost. This only means that the executive's bonus is not protected by the New York Labor Code. The executive may still have a solid legal claim to the unpaid bonus under a breach of contract theory.
