'Fringe Benefits' Are Wages Under WPCL

Hartman began working for Baker Installations Corp. as a cable installer in 1980, and his responsibilities increased steadily. Hartman’s earnings were based on a percentage of the company’s gross revenue.

In early 1985, Hartman and his boss, Frederick Baker, discussed a change in Hartman’s compensation plan. A proposal was made to reduce Hartman’s compensation in order to provide funds to pay other employees who would assume some of his responsibilities because the company was growing.

Baker wanted to change Hartman’s compensation to a formula based in whole or in part on net profits. The two also began discussing the possibility of Hartman obtaining an equity interest in the company.

Baker submitted the original version of a contract to Hartman on Feb. 12, 1985, and a revised version on Feb. 25.

The revised contract set forth that Hartman would receive a non-voting equity position and also that his management fee would be reduced. Hartman’s compensation soon changed in accordance with the revised plan.

Baker tried to revise the agreement again a few years later, but Hartman declined and told Baker he intended to make use of his equity position. Soon after that announcement, Hartman’s pay structure was changed to a salary with bonuses – without any discussion or agreement between the parties. Hartman soon resigned.

Baker denied the existence of a binding agreement giving Hartman an equity interest and did not honor Hartman’s right to exercise that interest.

Hartman sued under the WPCL, alleging that the equity interest constituted wages and that Baker’s failure to pay him those wages entitled him to liquidated damages under Section 260.10 of the act.

The parties determined that the amount of money Hartman had foregone by the reduction in his percentage of gross revenues from the date of the revised contract until he resigned was $51,668. The parties also agreed that any award of monetary damages would be based on that figure.

The trial court judge ruled that Hartman was entitled to the equity interest in the amount of $51,668 plus $27,900 to account for the interest that accrued from the date he resigned.

The judge found that Hartman should also receive 25 percent of $51,668 to recover for liquidated damages, and attorney fees in the amount of one-third of the aggregate amount he was entitled to recover.

Federal Precedent

Judge Zoran Popovich began by finding that there was a binding contract between the parties on the basis of their conduct. The court was most persuaded by the fact that Hartman’s salary changed on the specific date and in the specific manner provided for in the contract and a new employee was hired to take over some of Hartman’s duties.

Turning to Hartman’s WPCL claim, Popovich said the act’s definition of “wages” includes “fringe benefits or wage supplements whether payable by the employer from his funds or from amounts withheld from the employees’ pay by the employer.”

Fringe benefits and wage supplements are interpreted to include “any … amount to be paid pursuant to an agreement to the employee, a third party or fund for the benefit of employees.”

In the absence of caselaw from the state’s courts, Popovich took his cue from a 1988 Eastern District case, Bowers v. NETI Technologies Inc., in his discussion of Hartman’s claim.

The Bowers plaintiffs had entered into a stock repurchase agreement with a former employer. The employer argued at trial that the stock repurchase payments did not constitute wages under the act.

The court rejected the employer’s argument, stating that the payments were wages because “they were payments pursuant to the agreement, and they were offered to plaintiffs as employees, and not for some reason entirely unrelated to their employment” with the employer.

Popovich employed the same reasoning to Hartman’s case.

“Like the plaintiff in Bowers, the equity interest offered to [Hartman] was payment pursuant to a binding agreement. As we stated previously, the equity interest was provided in exchange for a reduction in [Hartman's] pay structure,” he said.

“This equity interest was offered to [Hartman] as an employee, not for some reason unrelated to his employment with [Baker]. Thus, pursuant to a liberal construction of Section 260.2a of the WPCL and the reasoning in Bowers, we agree with the [trial court's] determination that [Hartman's] equity interest constitutes ‘wages’ as defined by the WPCL.”

Good Faith