California Labor and Employment Defense Blog

Obama Administration Moves to Block Bonus Payments to AIG Employees

According to an article this morning in the Miami Herald the Obama administration will be attempting to block bonus payments to AIG executives and traders.  A number of other prominent politicians have also piled on with righteous indignation at the prospect of paying large bonuses to highly paid executives at a company that is, for all intents and purposes, nationalized.

''At a time when millions of Americans are losing their jobs and trying to make ends meet, it is outrageous that a company that has been bailed out by the taxpayers for its mistakes would turn around and pay its executives such a staggering sum of money,'' said Sen. Russ Feingold, D-Wis. Other lawmakers from both parties said much the same.

To the extent any of these executives worked in California, however, the administration's efforts to retract promised bonuses may run afoul of the Labor Code.  For example, case law has interpreted Labor Code section 221 to prohibit any retroactive deductions from wages that have already been earned.  In other words, an employee who is induced to work by an offer or promise of a bonus or other specified incentive has a vested right to receive the compensation.  It is irrelevant that the Company may experienced financial difficulties or changed circumstances in the meantime.

While we don't know the terms of the express or implied bonus agreements at issue, it is safe to say that the taxpayers may not save any money if AIG is pressured to incur the legal liability and ensuing litigation which will result from a retroactive cancellation of bonus wages.  

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