Tag Archives: employee pay

Your Company’s Bonuses Are Discretionary, You Say?

By Steven Jados, April 5, 2018

When it comes to employee bonuses, employers often prefer “discretionary” bonus policies—as opposed to more rigid and definite policies and procedures that answer the questions of “who” is eligible to receive bonuses, “when” bonuses will be paid, and “how much” the bonuses will be.

29483972 - bonus of businessmanA problem can arise, however, when the underlying method the employer uses to award bonuses remains consistent from year to year.  Under Illinois law, for example, past practice—even in a non-union setting—can give rise to a legally-enforceable expectation that a given employee is entitled to a bonus under the same method that has been used, uninterrupted, in prior years.

So what is an employer to do to protect itself?

The actual facts behind the company’s method for awarding bonuses will dictate whether a bonus is truly discretionary or not.  But the bottom line is that if your company intends to make changes to a long-used and fairly clearly-defined method of calculating bonuses, such changes should be made and announced to affected employees prior to the start of the bonus year.  Employers should also bear in mind that changes to a bonus procedure made in bad faith (for instance, where it appears clear that bonus procedures were changed specifically to deny a particular employee a bonus) may not withstand a court’s scrutiny.

For companies that truly do use a discretionary bonus system, include language in employee handbooks and other policy documents clearly stating (1) that bonuses are a discretionary, voluntary contribution by the company, based on company profitability and employee performance; (2) that bonuses are not earned until they are actually awarded and, as such, may be withheld, increased, decreased, or discontinued, at any time up to the bonus award date; and (3) that management reserves the unilateral right to change bonus policies at any time and for any reason. Whether the company’s bonus procedure is truly discretionary or not, factors that disqualify employees from bonus eligibility should also be clearly stated in all relevant handbooks and policies documents.

If you have concerns that your company’s discretionary bonus policies may not stand up to court scrutiny, we recommend contacting experienced employment counsel for a comprehensive bonus policy review.  In doing so, employers should bear in mind that state law often controls the question of whether a bonus is discretionary or not, and the law may differ significantly from state to state, so employers must be sure they seek legal advice covering all states in which the employer operates.

 

Too Hot in the Kitchen for Restaurant With Prior Notice from the DOL of Wage Violations

Contributed by Heather Bailey

restaurant kitchenA recent case out of the Northern District of Texas demonstrates just how important it is to listen to the Department of Labor (DOL) when they come knocking on your door.  (Solano v. Ali Baba Mediterranean Grille, Inc., 2016 BL 62687, N.D.Tex. No. 3:15-cv-00555, 3/2/16). Here, the DOL investigated allegations against the restaurant for failing to track time records, failing to properly pay a chef for the time he spent traveling between restaurants and improperly paying overtime on a bi-weekly basis instead of weekly. The DOL informed the restaurant of its improper pay practices, but was not sufficiently staffed for the DOL to take on the chef’s case. The chef ended up suing the restaurant in federal court on his own behalf and other employees.

Generally under federal law, the look back period for a non-willful wage violation is 2 years. However, when the employer’s actions are found to be willful – meaning it either knew or showed “reckless disregard” for the law – a court may look back into the employee’s work history for 3 years to determine damages. The court here found that a reasonable jury could find the restaurant’s violations “willful” because the DOL put it on notice that the restaurant was not properly paying this chef.

Practice Tips: Once the Department of Labor puts you on notice that you are improperly paying your employees and you do not heed its advice, it is a hard argument to win later down the road in court that you did not do so willfully. All this does is subject you to increased damages and penalties. Due to the nature and nuisances in the restaurant industry like proper roll out and administration of the tip credit and tip pools, we recommend you work with your legal counsel under the attorney client privilege to best determine how you are going to pay various categories of employees (e.g., chefs, bussers, servers, bartenders, door men and management).