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Factual and Procedural Background

In December 1984, Gregory D. Tuttle was hired by Geo. McQuesten Company, Inc. as the branch and sales manager of its wholesale lumber business in Albany County, New York. His initial compensation included a base salary plus commissions calculated as 25% of total gross margin earned on sales, less various operating expenses. In July 1985, this compensation was revised to a straight commission with a guaranteed minimum, eliminating the base salary. By December 1985, the compensation package was again revised to an annual salary of $60,000 plus commissions under a written compensation plan. This plan provided that any gross income exceeding $75,000 in a fiscal year would be paid out in three equal installments over three years, but required that the employee remain employed at the time of payment to receive these "hold over monies."

In May 1993, plaintiff resigned and requested payment of all withheld "hold over monies." Defendant refused, leading plaintiff to commence an action in December 1994 seeking payment of these monies plus interest, alleging violations of New York Labor Law §§ 190 and 193 and the federal ERISA statutes. After motions for summary judgment, the Supreme Court granted plaintiff partial summary judgment, holding that the withheld monies constituted "wages" under Labor Law § 190, and thus defendant was not entitled to withhold payments. Defendant appealed this determination.

Legal Issues Presented

  1. Whether the withheld "hold over monies" constitute "wages" within the meaning of New York Labor Law § 190, thereby entitling plaintiff to payment despite his resignation.
  2. Whether plaintiff, as a primarily managerial employee, qualifies as an "employee" entitled to protections under Labor Law article 6.
  3. Whether the compensation plan's deferred payments are incentive compensation excluded from the statutory definition of wages.

Arguments of the Parties

Appellant's Arguments (Defendant)

  • The withheld monies do not constitute "wages" under Labor Law § 190 but are instead incentive compensation not covered by the statute.
  • Since plaintiff's employment was primarily managerial, he is excluded from the definition of "employee" entitled to Labor Law article 6 protections.

Respondent's Arguments (Plaintiff)

  • The withheld monies are "wages" as defined by Labor Law § 190, representing earnings for services rendered.
  • Plaintiff qualifies as an "employee" under the general statutory definition and is thus entitled to statutory protection despite his managerial role.
  • The compensation plan’s language creates a vested right to the payments once earned, preventing forfeiture upon resignation.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162-163 Interpretation of unambiguous contract terms and vested rights in compensation agreements. Used to affirm that the written compensation plan’s clear terms vested plaintiff’s right to payments despite resignation.
Long Is. R.R. Co. v. Northville Indus. Corp., 41 N.Y.2d 455, 461 Contract interpretation principles. Supported the court’s reliance on the clear language of the compensation agreement.
Struble v. Chapman, 222 A.D.2d 856 Application of wage and contract law principles. Reinforced that withheld payments constituted wages under the Labor Law.
Riggs v. Riggs, 205 A.D.2d 864 Contractual rights to compensation and wage definitions. Supported the conclusion that the compensation plan payments were wages.
Daley v. Related Cos., 179 A.D.2d 55, 57-58 Definition of "employee" under Labor Law § 190. Used to reject defendant’s argument that managerial status excluded plaintiff from statutory protection.
Matter of Dean Witter Reynolds v. Ross, 75 A.D.2d 373 Definition of wages and employee status under Labor Law. Supported the court’s interpretation that payments were wages and plaintiff was an employee.
Klepner v. Codata Corp., 139 Misc.2d 382, affd 150 A.D.2d 994 Employee status and wage protections. Further supported plaintiff’s status as an employee entitled to wage protections.
Weiner v. Diebold Group, 173 A.D.2d 166, 167 Public policy against forfeiture of earned wages. Referenced to emphasize that forfeiture of vested wages would violate public policy.
Cohen v. Lord, Day Lord, 75 N.Y.2d 95 Public policy considerations in wage disputes. Supported the court’s rejection of forfeiture of earned compensation.

Court's Reasoning and Analysis

The court focused on the unambiguous terms of the parties’ written compensation agreement to determine the nature of the withheld payments. The compensation plan explicitly stated that amounts earned in excess of $75,000 per fiscal year would be paid in installments, with the first installment "due" at the end of the fiscal year in which it was earned. This language vested plaintiff’s right to the payments at the time they were earned, irrespective of his subsequent resignation.

The court rejected defendant’s argument that plaintiff’s primarily managerial role excluded him from the statutory definition of "employee" under Labor Law article 6, emphasizing that the relevant statutory provisions generally use the term "employee" without limiting protections to non-managerial roles. Hence, plaintiff was entitled to the protections of the Labor Law.

Furthermore, the court disagreed that the payments were merely incentive compensation excluded from the statutory definition of wages. Under Labor Law § 190(1), wages include earnings for labor or services rendered regardless of the payment method. Because the payments were earned compensation, they fell within this definition.

Finally, the court noted that allowing forfeiture of these vested payments would contravene public policy, reinforcing the conclusion that defendant was not entitled to withhold the "hold over monies."

Holding and Implications

The court affirmed the Supreme Court’s order and judgment granting partial summary judgment to plaintiff, holding that the withheld "hold over monies" constitute wages under New York Labor Law and must be paid despite plaintiff’s resignation.

The direct effect of this decision is that defendant Geo. McQuesten Company, Inc. is required to pay plaintiff the deferred compensation as wages. The opinion does not establish new precedent but reinforces established principles regarding the definition of wages, employee status under Labor Law article 6, and the enforceability of vested compensation rights under clear contract terms.

GREGORY D. TUTTLE, Respondent, v. GEO. McQUESTEN COMPANY, INC., Appellant.

Peters, J.

In December 1984, plaintiff was hired by defendant as the branch and sales manager of its wholesale lumber business located in the Town of Guilderland, Albany County. In connection therewith, plaintiff assumed sales responsibilities as well as general managerial and administrative duties. Plaintiff's initial compensation package consisted of a base salary plus commissions calculated at 25% of total gross margin earned on sales, less various operating expenses and charges. In July 1985, plaintiff's compensation package was revised whereby the base salary was eliminated and replaced with straight commission, subject to a guaranteed minimum.

Defendant is headquartered in Massachusetts and has sales offices and warehouses in several locations, whereby it purchases lumber wholesale from producers and sells it to retail lumber companies.

In December 1985, plaintiff's compensation package was again revised to reflect an annual salary of $60,000 per year, plus commissions, based upon the terms of a compensation "plan" presented by defendant. It provided, in relevant part, as follows:

"[a]ny amount of [plaintiff's] gross income in excess of $75,000 for any fiscal year * * * will be divided into three equal payments with one third being due for payment at the end of the year in which it is earned, one third payable at the end of the following year and the final one third payable at the end of the next following year. As an example if it were determined that your total income for year end 3/31/86 was $120,000, the $45,000 in excess of $75,000 would be paid as follows:

"$15,000 on 5/30/86 "$15,000 on 5/30/87 "$15,000 on 5/30/88."

The plan required, with minimal exception, that in order to receive what defendant termed as "hold over monies", plaintiff had to be employed by defendant at the time that these payments came due.

In May 1993, plaintiff resigned and requested that defendant pay him all "hold over monies" withheld from him pursuant to the aforementioned compensation plan. Defendant refused plaintiff's request, prompting the commencement of this action in December 1994 seeking, inter alia, payment of the money, plus interest, due to alleged violations of Labor Law §§ 190 and 193 and Federal ERISA statutes ( see, 29 U.S.C. § 1001 et seq.). After joinder of issue and cross motions for summary judgment, plaintiff was granted partial summary judgment by successfully establishing that the withheld moneys constituted "wages" pursuant to Labor Law § 190 and, thus, under Labor Law article 6, defendant was not entitled to withhold these payments as a matter of law ( see, Labor Law § 193). Defendant appeals, contending that the withheld moneys are not "wages" as defined by Labor Law § 190 but, rather, represent an incentive compensation plan not entitled to the statute's protection.

The determinative issue on this appeal is the applicability of Labor Law article 6. Upon our review of the record, we agree with Supreme Court that due to the unambiguous terms of the parties' written compensation agreement, summary judgment was appropriately granted ( see, W.W.W. Assocs. v. Giancontieri, 77 N.Y.2d 157, 162-163; Long Is. R.R. Co. v. Northville Indus. Corp., 41 N.Y.2d 455, 461; Struble v. Chapman, 222 A.D.2d 856; Riggs v Riggs, 205 A.D.2d 864).

Addressing defendant's first contention that since plaintiff's employment was primarily managerial he would not be an "employee" entitled to the protections of Labor Law article 6, we note that Labor Law § 190 defines all relevant terms for specific application to this article. Therein, it defines an "`Employee'" as "any person employed for hire by an employer in any employment" (Labor Law § 190). Acknowledging that Labor Law § 190 also defines other types of employees for those instances when specific reference is made in various provisions of this article and that such definitions include that of a "`commission salesman'" which excludes "an employee whose principal activity is of a supervisory, managerial, executive or administrative nature" (Labor Law § 190), we find that since the specific statutory violations alleged here make continual reference to the general term "employee" ( compare, Labor Law §§ 193, 198, with Labor Law § 191), plaintiff must be afforded statutory protection ( see, Daley v. Related Cos., 179 A.D.2d 55, 57-58; see also, Matter of Dean Witter Reynolds v. Ross, 75 A.D.2d 373; Klepner v. Codata Corp., 139 Misc.2d 382, affd 150 A.D.2d 994).

As to defendant's contention that the money at issue is a form of incentive compensation and, as such, does not fall within the definition of "`Wages'" pursuant to Labor Law § 190 (1), again we disagree based upon the terms of the compensation plan in question ( cf., Matter of Dean Witter Reynolds v. Ross, supra, at 381-382). Wages are defined in Labor Law § 190 (1) as the "earnings of an employee for labor or services rendered, regardless of whether the amount of earnings is determined on a time, piece, commission or other basis". The plan here at issue, notably written by defendant, explicitly states that for each year, the first third of the deferred amount of plaintiff's gross income in excess of $75,000 will be "due" at the end of the fiscal year in which it is "earned". By such clear and unambiguous language, summary judgment was appropriately granted on this issue since, pursuant to the terms of the parties' agreement, plaintiff had a vested right to these moneys at the time of his resignation ( see, W.W.W. Assocs. v. Giancontieri, supra, at 162-163; Struble v. Chapman, supra; Riggs v. Riggs, supra). Upholding a forfeiture thereof would be violative of public policy ( see, Weiner v. Diebold Group, 173 A.D.2d 166, 167; see also, Cohen v. Lord, Day Lord, 75 N.Y.2d 95).

Cardona, P.J., Crew III, White and Casey, JJ., concur. Ordered that the order and judgment are affirmed, with costs.

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TUTTLE v. GEO. McQUESTEN COMPANY, INC
(May 9, 1996)