Executive Recruiters’ $1 Million Unpaid Bonuses Lawsuit Survives Placement Company’s Motion To Dismiss

On January 27, 2010, in Nichols v. SG Partners, Index No. 109439/2009 (N.Y. Sup. Ct. N.Y. County) (Edmead, J.), the New York County Supreme Court denied in most respects the motion to dismiss of the defendant, a financial executive placement company, and held that the plaintiffs, two former executive recruiters at the firm, stated causes of action for breach of oral contracts to pay the recruiters 40% of the revenues that the company earned from any job placements which the recruiters made, less “amounts for the support staff.” The Nichols Court further held that, based on the company’s same failure to pay bonuses, the plaintiff recruiters stated claims for unjust enrichment and for violation of Article 6 of the New York Labor Law.

The Nichols Court ruled that the company could not withhold the recruiters’ unpaid bonuses, which allegedly totaled $1,265,000, because the headhunters did not work until the date the bonuses were to have been paid. This was the case because, according to the recruiters’ complaint, “it was the parties’ understanding that plaintiffs’ additional compensation for placements was ‘fully earned by [each of them] upon making a placement, regardless of when the revenue was received. ‘ ”

The Supreme Court determined that the fact “[t]hat the complaint does not allege a precise amount of the additional compensation or the precise calculation formula does not render the contract unenforceable.” The Court reasoned that “[a] determination of whether there exist sufficiently definite guidelines to enable a court to supply a bonus figure is a factual issue and survives a . . . motion to dismiss” for failure to state a cause of action.

Further, the Nichols Court determined that the plaintiff recruiters’ bonuses or incentive compensation were “wages” under Article 6 of the Labor Law. Accordingly, the recruiters stated a cause of action on the theory that the placement company violated N.Y. Labor Law § 193 by withholding from the recruiters their unpaid bonuses.

The Nichols opinion is based on a well-settled principle which I have discussed in two recent articles, linked here and here: that employees in the State of New York may enforce an oral agreement, made at the beginning of the employment relationship, to pay an annual bonus where that bonus is an integral part of the plaintiff’s compensation package.

Strangely, in Nichols, the Supreme Court analyzed whether the placement company’s oral agreements to pay annual bonuses to the recruiters were enforceable, or rather were barred by New York’s Statute of Frauds, without acknowledging that the New York Labor Law definitively answers “yes” to this question. Under N.Y. Labor Law § 191(1)(c), the terms of an oral agreement to pay an annual bonus toan employee in the financial services industry or elsewhere who is a “commission salesperson,” but who has no employment agreement in writing, presumptively are what that employee says those terms are.

Specifically, N.Y. Labor Law § 191(1)(c) requires that employment contracts for “[c]ommission salespersons” — such as the plaintiff recruiters in Nichols — be in writing and signed by both the employer and the commission salesperson. “Commission salesperson” appears to include many highly paid professionals on Wall Street, such as securities brokers. See N.Y. Labor Law § 190(6) (defining “[c]ommission salesman”); N.Y. Labor Law § 191-a(a) (defining “[c]ommission”).

As a penalty, N.Y. Labor Law § 191(c) creates a presumption that where the terms of employment are not reduced to writing, the terms that the commission salesperson presents are the agreed-upon terms of employment. Thus, in Nichols, the Supreme Court should have held that the terms of the oral agreements to pay bonuses ” ‘more or less annually ‘ ” to the plaintiff recruiters, who were commission salespersons but who had no written agreements of employment, not only were enforceable, but also presumptively were what those recruiters represented that those terms were.

If you are a professional who suspects that your former employer is unlawfully failing to pay you a bonus or incentive compensation owed to you and you reside in the Manhattan, NYC area, call Attorney David S. Rich at (347) 603-1143.