Maryland and Connecticut Issue Opinions under Their Respective State Wage Statutes Defining the Term “Wages” (Part I)

 Whether or not a particular form of compensation constitutes “wages” within the meaning of the applicable state wage collection statute can be critical in terms of the amount that the employer eventually may have to pay the former employee.  Many state wage statutes, Maryland’s and Connecticut’s being apt examples, provide that, in certain circumstances, “wages” within the meaning of the state statute that the employer has not paid to the employee can be doubled (Connecticut) or even trebled (Maryland).  Additionally, the statutes, Maryland and Connecticut again being apt examples, provide for an award of attorneys’ fees under certain circumstances to a prevailing plaintiff.  Thus, even though the employer may had breached a contractual obligation to provide the former employee with the particular form of compensation, the state’s statutory definition of “wages” could result in that contractual breach resulting in an award of two or three times the amount due plus attorneys’ fees.

In Catalyst Health Solutions, Inc. v. Magill, No. 80, Sept. Term, 2009 (Md. Ct. App. June 2, 2010), available here, Judge Battaglia, writing for all of the judges on the Maryland Court of Appeals with the exception of Judge Murphy, held that unvested incentive stock options are not “wages” under the Maryland Wage Payment and Collection Law.  In Catalyst, at issue were 60,000 conditionally granted unvested incentive stock options, awarded under grant agreements by his employer to Mr. Magill.  The vesting schedule under the incentive stock option award agreement provided that 25% of the award vested 12 months after the grant date and the remaining 75% vested in 3 equal annual installments beginning on the first anniversary of the initial vesting date.  Shortly after his termination, Mr. Magill attempted to exercise these options even though they had not vested before his termination.  As the stock option plan provided that the exercise of the options was conditioned upon Mr. Magill’s employment for a specific time period, a time period that he did not meet, the employer declined to allow him to exercise the options.  Mr. Magill argued that the options grant had been awarded to him for his prior job performance and for meeting a specific performance sales goal.  The Circuit Court granted partial summary judgment to Mr. McGill on his Wage Payment and Collection Law claim, and entered final judgment against his former employer Catalyst in the amount of $849,262.50.  The Court of Appeals reversed.  While the Court of Appeals agreed that the stock option award was for prior job performance, it nonetheless held that they were not “wages” under the Act because he had not satisfied all of the conditions for exercise of the options.  The court, in explaining its rationale for reversal, stated as follows:

Importantly, for our determination regarding the unvested stock options in the instant case, we turn to our bright-line test, as devised in Whiting-Turner, which provides that only when wages have been promised as part of the compensation for the employment arrangement and all conditions agreed to in advance for earning those wages have been satisfied, will Section 3-505 requiring payment of wages due apply. [Whiting-Turner Contracting Co. v. Fitzpatrick, 366 Md. 295] at 305, 783 A.2d [667] at 672-73 (emphasis in original).

In Ziotas v. The Reardon Law Firm, P.C., SC 18292 (Conn. June 8, 2010), available here, the Connecticut Supreme Court, in an opinion to be officially released on June 8th, held that a year-end bonus, the amount of which is discretionary, did not constitute “wages” within the meaning of the Connecticut statute.  Tomorrow, in part II, there will be a detailed discussion of Ziotas.

Please be sure to visit our website at http://RobertBFitzpatrick.com