Verbal Bonus Promise Proves Costly to Employer

Photo of Linda Johnson
Linda S. Johnson
Director, Litigation Department and Vice Chair of Education Law Group
December 1, 2007

On July 17, 2007, the New Hampshire Supreme Court issued another decision which serves as a reminder to all employers that they should set forth in writing the terms of any bonus or compensation plan for employees. In the case of The Demers Agency v. Tami Childs Widney, the court upheld a court decision awarding employee, Tami Childs Widney $7.106.25 for a bonus that was paid by the company after Ms. Widney had left the employment of the company, another $7,106.25 in liquidated damages on the basis that the company was without good cause for withholding the bonus, and $2,500 in attorneys fees.

The case was first brought at the NH Department of Labor. They found that when Ms. Widney began employment, she was promised compensation of an annual base salary, quarterly bonuses based upon sales and a year-end bonus based on the company’s profitability for the year. Ms. Widney worked for the company from March of 2003 to February of 2005. Ms. Widney took a job at another insurance agency approximately six weeks before the date that The Demers Agency typically distributed the year-end bonus. When she asked for her 2004 year-end bonus, the company refused saying that since she was not employed at the time the bonus was paid, she was not entitled to it. Ms. Widney’s testimony about what she was told when she was hired was enough evidence to support the award even in the face of contradictory testimony by the company.

The NH Supreme Court also ruled that a bonus qualified as “wages” within the meaning of New Hampshire’s wage statute thus entitling Ms. Widney to the potential for statutory liquidated damages and an award of attorneys, both of which were awarded. The court pointed out that their holding did not mean that an employer could not condition payment of a bonus upon continued employment for some stated term. Rather, the court explained that the holding in this case is limited to those circumstances in which a bonus is part of an agreed-upon compensation package and the employee has performed all of the duties necessary to trigger the employer’s obligation to pay the bonus.

As to the award of liquidated damages, NH law provides that when an employer willfully and without good cause fails to pay an employee wages, the employer can be liable for liquidated damages of up to double the amount due. Here, where the company had no written policy requiring continued employment as a qualification for being paid the year-end bonus that had already been earned, there was evidence to support that the employer should have known that it owed the bonus and it was withheld “only because `the owner` was upset with `the employee` moving on to other employment” after he has invested so much time and effort in her training.

The lesson to be learned from this case is that employers should comply with the NH Department of Labor regulation that every employer shall, at the time of hiring, notify the employees in writing as to their rate of pay as well as a detailed description of any fringe benefits, such as a bonus, together with the conditions of such benefits. Verbal notice of the terms to be eligible for a bonus is not enough – as this employer found out the hard way.