Clawbacks of Bonuses and Commissions: Wage and Hour Considerations

Thomson Reuters Practical Law

Jeffrey H. Ruzal, Member of the Firm, and Carly Baratt, Associate, in the Employment, Labor & Workforce Management practice, in the firm’s New York office, co-authored a Thomson Reuters Labor & Employment Practice Note, titled “Clawbacks of Bonuses and Commissions: Wage and Hour Considerations.” (Read the full version – subscription required.)

Following is an excerpt:

This practice note addresses the wage and hour implications of clawback and forfeiture provisions and provides drafting considerations for incentive compensation agreements. Clawback provisions require employees to pay back money to employers that they already received whereas forfeiture provisions provide that employees forfeit the right to receive money when specified conditions occur. The practice note covers the types of compensation often subject to clawback and forfeiture provisions and addresses the circumstances where payments may or may not be forfeited or clawed back. The note also discusses whether compensation subject to a clawback/forfeiture provision constitutes “wages” under state law.

Specifically, this practice note provides practical guidance on the following issues:

  • What Are Clawback and Forfeiture Provisions?
  • Types of Compensation Subject to Clawback and Forfeiture Provisions
  • Circumstances Where Payments May or May Not Be Forfeited or Clawed Back
  • Comparison of Different States’ Treatment of Incentive Compensation (Vis-À-Vis Wages) and Whether Incentive Compensation Can Be Subject to Clawback or Forfeiture
  • Drafting Tips for Incentive Compensation Agreements

This note does not address clawbacks under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, Pub. L. No. 111-203, 124 Stat. 1376 (July 21, 2010).