New York employers that rely on “discretionary” bonus language may soon find that their bonuses are not as discretionary as previously thought. The Wage Payment Integrity Act (S2236A/A2222A) would amend Article 6 of the New York Labor Law to treat any bonus or other compensation that is not payable at the employer’s “sole and absolute discretion” as “wages,” bringing those payments within the Labor Law’s wage payment protections and remedies. The bill has cleared the Legislature but has not yet been delivered to Governor Hochul. Because it would take effect immediately once enacted, employers should start preparing now.
BACKGROUND
New York courts have long read New York Labor Law Article 6’s bonus language narrowly, holding that a bonus is not a “wage” if it is tied to any factor other than the individual employee’s own performance (such as company or team results) or is subject to employer discretion. The Act is a direct legislative response to that case law and, per its sponsor, is intended to “bolster protections against wage theft.”
KEY PROVISIONS
Expanded Definition of “Wages”: The Act amends Labor Law §190(1) so that “wages” expressly includes “any employment compensation that is not payable at the employer’s sole and absolute discretion.” In practice, bonuses, incentive payments, and other supplemental compensation may be wages unless they are purely discretionary, regardless of whether they are tied to individual, team, or company performance.
Strict Notice Required to Treat a Bonus as Discretionary: To exclude a bonus or other compensation from “wages,” the employer must notify the employee in a “clear, prominent, timely and uncontradicted fashion” that the employer “has sole and absolute discretion to decide whether or not to pay it.” While not stated in the Act, language contradicted by a bonus formula or by statements to employees, or notice given after the fact may not suffice.
Advance Notice of Compensation Changes and a New Presumption: Labor Law §195(2) already requires employers to notify employees in writing of changes to their pay information at least seven calendar days before the change takes effect (unless the change is reflected on the employee’s wage statement). The Act now goes further: if an employer fails to produce the written terms of employment when requested by the Commissioner of Labor or an employee, there is a presumption that the terms presented by the employee are the agreed-upon terms.
Executive, Administrative, and Professional Employees: Labor Law §198-c, which governs unpaid benefits and wage supplements, currently excludes bona fide executive, administrative, and professional employees earning more than $1,300 per week from its coverage entirely. The Act narrows that exclusion to the statute’s criminal penalties only. As a result, these employees could bring civil claims under §198-c for unpaid benefits and wage supplements.
WHAT THIS MEANS FOR EMPLOYERS
Greater Potential Civil Exposure: Compensation that qualifies as “wages” is subject to Article 6’s protections, including restrictions on deductions and forfeiture and the remedies available under Labor Law §198: liquidated damages of up to 100% of the unpaid amount, prejudgment interest, and attorneys’ fees.
Forfeiture Provisions at Risk: Clawback provisions may be harder to enforce against compensation that is a “wage,” particularly where the amount has been already earned and is calculable.
Recordkeeping Matters: Because of the new presumption, an employer that cannot produce the written terms of an employee’s compensation may be bound by the employee’s version of those terms.
EMPLOYER TAKEAWAYS
To plan ahead, employers should consider the following:
- Audit existing bonus programs and compensation agreements to identify every form of supplemental compensation and determine whether each is truly discretionary or would be treated as “wages.”
- Revise offer letter, bonus plan, and handbook language so that any compensation intended to be discretionary clearly and prominently states that the employer has “sole and absolute discretion to decide whether or not to pay it.”
- Eliminate contradictions between “discretionary” labels and formulas, targets, guaranteed amounts, or manager communications that suggest a bonus is earned or promised.
- Monitor developments as the bill moves to the Governor and as courts begin interpreting the “clear, prominent, timely and uncontradicted” standard.
If you have any questions relating to the Wage Payment Integrity Act or would like assistance reviewing your bonus plans, offer letters, or handbook language, please feel free to reach out to the Nukk-Freeman & Cerra Attorney with whom you typically work or call us at 973.665.9100 or 619.292.0515.