As we recently noted in our discussion of Massachusetts law, incentive compensation has the potential to become “wages” protected by state labor law once it is “earned.” However, when an employer conveys to the employee that it retains discretion to award or not award incentive compensation in any specific amount, such potential incentive compensation (whether styled “bonus” or some other term) typically does not become earned wages until such time as it is awarded by the employer and thus deemed earned. A new decision reinforces this principle as applicable under New York law. O’Grady v. BlueCrest Capital Mgmt. LLP, 2015 U.S. Dist. LEXIS 77187 (S.D.N.Y. June 15, 2015).

In O’Grady, Judge Sidney H. Stein ruled that Plaintiff was “not entitled to any bonus payment pursuant to the plain language of his employment contract . . . [which] unequivocally states that ‘any bonus program and awards made pursuant thereto by the Company will be subject to the Company’s sole and absolute discretion’ . . . [and it] is well established that an employee cannot recover for an employer’s failure to pay a bonus under a plan that provides the employer with absolute discretion in deciding whether to pay the bonus.” The Judge rejected Plaintiff’s argument that “only the establishment of [the] . . . ‘bonus program’—but not an award made pursuant to that bonus program—[wa]s ‘subject to the Company’s sole and absolute discretion’” or that, in the alternative, “the establishment of [bonus] Guidelines constituted the exercise of BlueCrest’s discretion and thus the actual award of an 18% bonus was mandatory.”

The crafting of offer letters and incentive compensation policies and plans remains highly important in New York and nationwide.