Wage payment laws are critical to ensuring fair treatment and compensation for employees. Among the most litigated issues in this area is whether bonuses and commissions qualify as “wages” under wage payment statutes. In the 2024 Regular Session, the Louisiana legislature enacted La R.S. 23:631(E) which attempts to provide further clarity on these issues.

The Issue

The central question in wage payment disputes is whether promised bonuses and commissions are considered wages under applicable wage payment laws. This often arises when employees allege that employers failed to pay such compensation after termination, while employers may argue that these payments are discretionary and do not constitute wages owed under the law.

 Background

Employment contracts often outline compensation packages that include base salaries, performance bonuses, and sales commissions. Disputes typically arise when employers refuse to pay bonuses and commissions upon termination, citing clauses that suggest discretion. Employees, on the other hand, may argue that bonuses and commissions were earned before termination and thus constitute unpaid wages.  La R.S. 23:631(E) adds significant clarity by defining when such payments are deemed earned and due.

Legal Framework: La R.S. 23:631(E)

Under La. R.S. 23:631(E), the following principles apply commissions, incentive pay, or bonuses are due and earned at separation if they are not subject to modification according to a written policy at the time of separation and are not discretionary.
- Permissible Adjustments Under Written Policies: Employers may include lawful provisions in their written policies, such as:
                1. Adjustments to commissions based on changes to the order generating the commission that affect its amount.
                 2. Payment being contingent upon the employer receiving the payment generating the commission, incentive pay, or bonus.
                 3. In the case of bonuses determined by financial performance metrics (e.g., annual, quarterly, or other periodic basis), the employer may take up to 120 calendar days after the relevant period to calculate and pay the bonus using standard accounting practices.

In light of La R.S. 23:631(E), Louisiana courts may determine that bonuses and commissions qualify as wages when:
1. Clear Contractual Obligations Exist: Employment agreements or written policies explicitly tie bonuses and commissions to specific performance metrics, making them non-discretionary.
2. Performance Metrics Are Met: Employees meet or exceed the criteria for earning bonuses and commissions before termination, consistent with written policies.
3. Wage Payment Statutes Apply: State laws require that all earned compensation be paid promptly, including upon termination, unless deferred under the conditions outlined in La R.S. 23:631(E).

Failure to comply with these principles can lead to damages that includes the unpaid bonus compensation, a 90-day daily rate of pay penalty, and attorneys fees for employees.  For a highly compensated individual like a financial advisor or executive, failure to pay out a bonus or commission can potentially lead to a hefty liability for the employer and big payday for the employee.

Implications for Employers and Employees

 For Employers:

1. Clarity in Employment Agreements: Employers must carefully draft employment agreements and written policies, explicitly defining which elements of compensation are discretionary and which are not.
2. Compliance with La R.S. 23:631(E): Employers should review their policies to ensure compliance with the provisions regarding commissions, incentive pay, and bonuses.
3. Avoiding Disputes: Clear communication about compensation policies and timely payments can reduce the risk of disputes.

For Employees:

1. Know Your Rights: Employees should review their employment agreements and understand how La R.S. 23:631(E) affects their entitlement to compensation.
2. Document Performance: Maintaining records of performance and communications with employers can strengthen claims for unpaid compensation.
3. Seek Legal Help: If an employer withholds earned bonuses or commissions, employees may have legal recourse under wage payment laws.

This discussion highlights the importance of treating bonuses and commissions as wages when they are explicitly tied to objective performance metrics. La R.S. 23:631(E) of the 2024 Regular Session reinforces the obligation of employers to honor such agreements while allowing reasonable contingencies through written policies. For employees, it ensures greater transparency and fairness in compensation.

At our firm, we understand the complexities of wage payment disputes and are here to help both employees and businesses navigate these challenges. If you have questions about your rights or responsibilities regarding bonuses, commissions, or other wage-related issues, contact us today for expert legal guidance.

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