The law regarding an employer’s obligation to pay contractual bonus amounts received significant clarification in a recent Rhode Island case. Why this is important is that Wage Act violations are subject to mandatory double damages plus attorneys’ fees, and can even result in treble damages for egregious or repeat violations. Rhode Island’s Wage Act defines “wages” broadly, to include far more than base salary or hourly compensation. Indeed, “wages” can include a wide range of variable compensation metrics including commission-based and other methodologies. While the Act does instruct that a bonus “in addition to the payment of wages” does not constitute wages, bonuses may be deemed to be covered wages when they represent compensation for services rendered.

In this recent case, the Rhode Island court held that the language of an employment agreement, which provided that performance-based bonus payments were not discretionary, meant that they were wages under the Act. Based on this new guidance, courts will likely look closely at enforcing bonus language in an employment agreement, and subjecting those bonus amounts to double or treble damages. When designing bonus structures, what gets written must reflect what is intended. If a bonus structure is to be discretionary, that must be made clear. Likewise, employers should recognize that a rash decision to withhold a bonus from a current or departing employee – even where the terms of that bonus are not part of an employment agreement – can result in double or even treble damages.

This case is particularly important to companies who have employees whose compensation includes more than a fixed hourly rate or salary amount. For example, companies frequently have employment contracts with senior executives, sales team members, department heads, or others where compensation is partially based on performance of the individual, a department, or the company as a whole.

While this recent case helps clarify that bonuses related to an employee’s personal production can be governed by the Wage Act, questions linger regarding bonuses related to performance of units supervised by an employee. This could range from a manager’s bonus based on his department’s cost-saving goals, to a CEO’s compensation related to her company’s overall performance. Based on the lack of Rhode Island law in this area, it is likely that caselaw from other jurisdictions would help inform the decision of the Rhode Island courts should this matter come before them again. In the meantime, for more information on this evolving topic, please contact PLDO Partner Joel K. Goloskie at jgoloskie@pldolaw.com or Paige E. Macnie at pmacnie@pldolaw.com.

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NON-COMPETE AGREEMENTS IN ACQUISITION TRANSACTIONS: “ONE SIZE DOES NOT FIT ALL”

Non-compete agreements (“NCAs”) are a key component in virtually all merger and acquisition transactions and, provided they are reasonably in scope and duration, they have generally been enforced by the courts in cases involving post-closing challenges. It is quite common that NCAs include both the selling company and its owners, as well as key employees of the business being acquired.

The primary reason for enforcing NCAs is to ensure that the buyer gets the benefit of its bargain. Clearly, no one would pay a seller the value of its business if the seller could open a competing business across the street after the closing.

While this seems straightforward as it relates to the seller and its owners, since they share in the proceeds of the sale, the common inclusion of key employees in these NCAs raises at least two issues. First, how can key employees who do not share in the sale proceeds be incentivized to agree to these new restrictions? Secondly, how does the proliferation of recent state laws limiting NCAs in the context of employees who are not selling their businesses impact key employees of the company being sold?

PLDO Partner William F. Miller provides answers to these questions and more in his latest advisory, Non-Compete Agreements In Acquisition Transactions: One Size Does Not Fit All. The article reviews the laws that apply in M&A transactions, trends in state employment law regarding NCAs, and offers practical considerations to avoid jeopardizing the transaction by either party. For answers to your questions about NCAs or any other business matter, please contact PLDO Partner William F. Miller at 508-420-7159 or email wmiller@pldolaw.com.

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Understanding the business challenges confronted by owners is critical to success for lawyers and other professional services consultants. Most businesses have many moving parts. Administrative, financial, personnel and/or human resources are the primary components to the backroom of a business, while the legal issues may involve contractual disputes, vendor relations, employee issues or even OSHA claims, depending upon the nature of the business. Familiarity with the business platforms, i.e., finance, accounting systems, administrative policies, procedures and management controls are important to a successful operation and provide the necessary tools to take preventative measures to avoid legal challenges.

At the center in all business operations are leadership, personnel and communications. Leadership is all about having a vision and creating an environment in which personnel are motivated to do their job well. Coaching, supporting, motivating and inspiring employees to do their best are key leadership skills. It is all about setting a good example and modeling the behavior you want your employees to practice. If the leadership in the company demands excellence from themselves, they can inspire management and employees to adopt a similar attitude and work ethic.

In his latest advisory, PLDO Managing Principal Gary R. Pannone provides his insight and experience to help business owners prevent and mitigate the risk of legal challenges using the construction industry as the example. Attorney Pannone offers an inside look at the basic infrastructure required, how to avoid risks, why communications is vital to the bottom line and why planning and procedures should be considered. Click here to access The Intersection of Legal and Business Issues and please contact Attorney Pannone at 401-824-5100 or email gpannone@pldolaw.com for more information or questions you may have about operating a successful business.

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In November of 2021, we published a Client Advisory summarizing the Corporate Transparency Act (the “CTA”) and its impact upon both newly formed and existing business entities. The CTA was passed by Congress in early 2021 and becomes effective upon the issuance of final Treasury Regulations. In general terms, the CTA requires a wide range of business entities to report personal information regarding the individuals who own, control or form covered entities to the Financial Crimes Enforcement Network of the U.S. Department of Treasury (“FINCEN”), which is required to maintain a data base of all information provided.

On December 7, 2021, FINCEN issued a Notice of Proposed Rulemaking (the “Proposed Regulations”) with respect to the beneficial ownership information reporting requirements of the CTA. The proposed new rules discuss who, what and when information must be reported to the FINCEN and help clarify some of the ambiguities of the Act itself.

PLDO Partner William F. Miller, who authored the original advisory (link above and here) provides an update on the proposed regulations including who must file, information that must be reported, FINCEN’s reporting timelines, and the deadline to submit comments about the proposed regulations to FINCEN. To access his advisory with the updates, please click on FINCEN Issues Proposed Regulations Interpreting The Corporate Transparency Act. If you have questions about the CTA, proposed regulations or would like more information on this topic or other business matters, please contact Attorney Miller at 508-420-7159 or email wmiller@pldolaw.com.

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STAY INFORMED – PLDO COVID-19 RESOURCE LIBRARY

PLDO’s team of attorneys continue to add updates and advisories regarding the pandemic and its impact on families, businesses and organizations. To access our COVID-19 Resource Library, click here.

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