Quick Hits
- Louisiana’s Act No. 556 allows employers to establish policies concerning when an employee earns a commission, incentive payment, or bonus. Examples include adjusting such compensation where the employer does not receive payment from a customer and adjusting commissions when there is a change order.
- Act No. 556 extends the time by which an employer must determine an employee’s eligibility for a bonus under a bonus plan that utilizes financial information that reflects the employee’s or employer’s performance.
- To take advantage of the new law, the employer’s compensation policy must be in writing.
- The new law also overrules jurisprudence that deemed some provisions in employer bonus policies and agreements to be wage forfeitures.
Background
The LWPA generally requires an employer to pay a discharged employee all compensation due to the employee under the terms and conditions of the employee’s employment at the time of discharge. Prior to passage of the new law, employers could not condition an employee’s earning of a commission upon the employer receiving payment from a customer. This created problems when a commissioned employee left the company, as commissions might still be due to the departing employee, despite the employer not having received payment at the time the employee resigned or was discharged.
Additionally, employers might unwittingly run afoul of the law when establishing bonus policies. For example, provisions requiring being “present to win,” whereby an employer would condition an employee’s payment of a bonus on the employee being employed in good standing with the company at the time the bonus was paid out, were often ruled by courts to be unlawful wage forfeitures, which would in turn subject employers to claims for unpaid wages, penalties, and attorneys’ fees. Such judicial rulings created both uncertainty and accounting challenges for employers, which must comply with the requirement under the LWPA that employees be paid all amounts due within fifteen days of their departure from the company.
Act No. 556 Creates Flexibility
Pursuant to Act No. 556, where compensation is available to an employee in the form of commission, incentive pay, or bonus, such amounts will be due to the employee if (1) earned in accordance with the employer’s policy that addresses the commission, incentive pay, or bonus; and (2) such policy is in writing.
The new law identifies the following specific policies that shall be considered lawful and will not be deemed wage forfeitures:
- a policy providing for adjustments to a commission when there is a change order or other event that affects the amount of the commission; and
- a policy providing that the employee does not earn a commission, incentive payment, or bonus until the employer receives payment from the customer on the sale or other event that generates the commission, incentive payment, or bonus.
Finally, as to bonuses determined by financial information reflecting the employee’s or company’s performance on an annual, quarterly, or other periodic basis, Act No. 556 extends the fifteen-day period by which employers must pay departing employees the bonus that may be due. Now, employers shall determine an employee’s eligibility for a bonus, and the amount thereof, within a reasonable period, though not to exceed 120 calendar days, from the end of the calculation period used by the employer to determine the bonus.
Key Takeaways
Act No. 556 provides employers with the flexibility to set pay policies regarding whether and when an employee earns a commission, incentive payment, or bonus. The new law restores freedom of contract for both employers and employees, as well as grants employers greater flexibility to create compensation agreements that align with industry practices and the unique needs of a company’s business.
Ogletree Deakins’ New Orleans office will continue to monitor developments and will provide updates on the Louisiana and Wage and Hour blogs as additional information becomes available.
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