In Callan v. Merrill Lynch & Co., Inc., No. 09 CV 0566 BEN (BGS), 2010 WL 3452371 (S.D. Cal. Aug. 30, 2010) (slip op.), the Southern District held that compensation plans that contained cliff vesting schedules in which awards are forfeited if employment terminates before the awards are vested did not constitute unpaid wages under the Labor Code.
Former employees of the Defendants Merrill Lynch & Co., Inc. and Merrill, Lynch, Pierce, Fenner & Smith, Inc. participated in three of Merrill Lynch’s employee compensation packages. Id. *1. Plaintiffs alleged they were required to accept part of their wages in the form of “awards” under the plans. Id. Plaintiffs alleged the plans contain forfeiture provisions that constitute unlawful conversion and violate California’s Labor Code and Unfair Competition Law. Id.
Plaintiffs sought recovery of unpaid wages, pursuant to Labor Code sections 201, 202, 204, 221 and 222. Id. *4. It was undisputed that the plans in this case contain a cliff vesting schedule whereunder awards are forfeited if employment terminates before the awards are vested. Id. The court recited the standard for determining whether a forfeiture provision violates the Labor Code:
“[T]he Court first addresses whether Plaintiffs had “earned and unpaid” wages on the date their employment terminated, i.e., on January 12, 2007. Schachter v. Citigroup, Inc., 47 Cal. 4th 610, 618, 101 Cal.Rptr.3d 2, 218 P.3d 262 (2009). The term “wages” broadly includes “not only the periodic monetary earnings of the employee but also the other benefits to which he is entitled as a part of his compensation.” Id. Incentive compensation, such as bonuses and profit-sharing plans, generally constitutes wages. See Neisendorf v. Levi Strauss & Co., 143 Cal. App. 4th 509, 522, 49 Cal. Rptr. 3d 216 (2006). However, this compensation does not constitute “wages” unless “all conditions agreed to in advance for earning those wages have been satisfied.” Id.; see also Lucian v. All States Trucking Co., 116 Cal. App. 3d 972, 975-76, 171 Cal. Rptr. 262 (1981).
As one California court has stated, California courts have consistently characterized bonus and profit sharing plans as constituting an offer of the stated benefits in exchange for the service of an employee, and upon the employee’s completion of the required services in accordance with the terms of the plan, a binding contract is formed under which the employer is obligated to deliver the promised benefits. Neisendorf, 143 Cal. App. 4th at 523, 49 Cal. Rptr. 3d 216 (emphasis in the original). Therefore, the specific terms of the Plans control whether Plaintiffs were entitled to payments under the Plans as “wages.”
The court concluded that defendants were entitled to judgment on the pleadings. Id. *5. Plaintiffs did not dispute that they received all vested awards to which they were entitled under the Plans. Id. Rather, plaintiffs argued that the forfeiture provisions for unvested awards were illegal and, therefore, violated California’s Labor Laws. Id. “Plaintiffs do not cite authority for their position that they still have a wage interest in these unvested awards despite failing to meet the conditions therefor, and the Court could find none.” Id.
Judges and Attorneys
District Judge Roger T. Benitez.
James F. Clapp, Zachariah Paul Dostart, Dostart Clapp Gordon & Coveney, LLP, San Diego, CA, for Plaintiffs.
Bethany A. Pelliconi, Matthew Charles Kane, Michelle Renee Walker, Sylvia Jihae Kim, Mcguirewoods LLP, Los Angeles, CA, for Defendants.
By CHARLES JUNG