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Bonus Plans for Louisiana Employees Must Comply with Louisiana Wage Payment Statute

The Louisiana Wage Payment Act (“LWPA”), La. R.S. 23:631, et seq., requires an employer who discharges an employee to promptly pay the employee the amount due under the terms of employment. The LWPA also prohibits an employer from requiring an employee to forfeit his or her wages upon discharge.

In the seminal Louisiana forfeiture clause case, the Louisiana Supreme Court held that a provision which required forfeiture of unpaid wages if employment was terminated for reasons other than death, disability or retirement, was “manifestly unjust, contrary to public order and public policy, and unenforceable if sought to be applied in a circumstance where, by the unilateral act of the employer, the employee is prevented from performing his part of the bargain to complete vesting of deferred compensation benefits.” Morse v. J. Ray McDermott & Co., Inc., 344 So.2d 1353 (La. 1976).  In Morse, the employer-defendant terminated the plaintiff’s employment “without cause,” and therefore the court ruled that the employee was entitled to deferred compensation benefits.

A couple of years later, the Fourth Circuit Court of Appeals of Louisiana extended the holding of Morse to apply to circumstances in which employment is terminated for employee misconduct.  See Pender v. Power Structures, Inc., 359 So.2d 1321 (La. Ct. App. 4th Cir. 1978). In Pender, the employer was obligated by contract to pay certain bonuses based on profits calculated quarterly and payable within 30 days of the end of the bonus period, so long as the employee was employed at the time of payment. The day after the end of the employer’s fiscal year, and prior to payment of any bonuses, the employer involuntarily terminated the plaintiffs’ employment because they were planning to begin a competing business. The court held that the requirement of continued service in the bonus plan was unenforceable as against public policy and that plaintiffs were entitled to collect the bonuses which constituted part of the compensation promised to them for services performed during the bonus period.  Id. at 1323.

Two decades later, the Louisiana Supreme Court in Beard v. Summit Inst. of Pulmonary Med. & Rehab., Inc., 707 So.2d 1233 (La. 1998), held that an employer’s wage forfeiture policy, which provided that an employee would forfeit all accrued benefits if that employee abandoned his or her position was unenforceable in light of La. R.S. 23:634.  In Beard, the employee resigned and there were no allegations of wrongdoing by the employee.

Other decisions in Louisiana have focused their analysis on whether the employee has actually “earned” the bonus payments at issue by having been employed throughout the employment period giving rise to the bonus payment. For example, the Fourth Circuit has clarified that Pender was premised on the fact that the employees had “earned” their bonuses at the time of their discharge.  They were terminated after the incentive payments had accrued. Hinton v. Owensby & Kritikos, Inc., 425 So.2d 926, 929 (La. Ct. App. 4th Cir. 1983).  Consistent with Hinton, the United States District Court for the Eastern District of Louisiana has noted that “when Louisiana courts uphold continued employment conditions, it is generally because some part of performance on the part of the employee, in addition to mere continued employment, is still due.” Thorne v. Bard Peripheral Vascular, Inc., 2016 WL 3746148, at *7 (E.D. La. July 13, 2016).

Employers who condition the payment of an earned bonus on continued employment after the bonus period ends need to require some type of additional performance by the employee after the bonus period.  Otherwise, the employer runs the risk of a court ruling that the employer’s bonus plan is a forfeiture of wages and violates Louisiana public policy.