In October 2015, the Second Circuit Court of Appeals ruled that an employer’s reduction of an employee’s discretionary bonus constitutes an adverse employment action and may support an employee’s discrimination claim. Davis v. New York City Dep’t of Educ., 2015 U.S. App. LEXIS 18115 (2d Cir. 2015).
In Davis, a teacher, took an extended leave of absence after injuries suffered in a car accident. As a result of her leave of absence, Davis’ employer reduced her bonus from $3,000 to $1,000. The Second Circuit held that the reduction of Davis’ bonus constituted a materially adverse action even though Davis’ discrimination claim ultimately failed.
The Second Circuit found that the “fact that the employer has discretion whether to grant bonuses or raises does not support the conclusion that an employer may freely allocate them on the basis of racial or religious bias, or disability discrimination.” It noted that most business decisions are discretionary. Employers have discretion in deciding who to hire, fire, and promote, but the fact that those decisions are discretionary does not protect them from discrimination statutes. The Second Circuit sees no reason to analyze bonuses differently.
The Second Circuit’s Davis expressly refused to follow the law of the Seventh Circuit, which treats employers’ decisions about discretionary bonuses as “beyond the reach of discrimination statutes” because bonuses tend to be “sporadic, irregular, unpredictable, and wholly discretionary,” as opposed to raises, which are the normal, expected reward for satisfactory work. Hunt v. City of Markham, 219 F.3d 649 (7th Cir. 2000).
After this ruling, the state of the law governing reductions in discretionary bonuses and raises is unclear. Both the Second Circuit and D.C. Circuit hold that the denial or reduction of a discretionary bonus is materially adverse. On the other hand, the Seventh Circuit treats decisions about bonuses as “wholly discretionary.” To be on the safe side, employers should ensure that they have documented reasons explaining all decisions regarding bonuses to avoid legal problems while the law on this issue continues to develop.
Personal Guaranty. Protect your personal assets by placing a limit on personal guarantees. Personal guarantees are required by most landlords, but the scope of those guarantees is often negotiable. You can reduce your personal exposure by limiting the guarantee to a set number of years or by decreasing the extent of the guarantee by a percentage each year.
Square Footage. Only pay for the space you get. Commercial tenants often overpay for their spaces because of the inaccurate measuring of the premises. “Phantom space,” the extra space listed on lease agreements that does not actually exist, costs you extra money in base rent and CAM, and quickly adds up over a 10-year term. Before you sign, ensure you’re getting what you pay for by measuring the space and recalculating the rent.
Earlier this month, Marcus & Boxerman published the first of a four-part series discussing red flags in commercial leases. This installment discusses the importance of keeping overly restrictive permitted use and continuous operation provisions out of your lease while insisting that an exclusivity clause stays in to stop your landlord from renting to competitors.
Signing a commercial lease always involves some degree of predicting the future. You know what’s good for your business now, but you can’t be certain what it will need down the line. So, it is important to keep your options as open as possible without sacrificing stability in the process. Sublease and assignment, relocation, and demolition clauses determine who controls your location during your lease—you or your landlord.
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Compliance begins with the hiring process. Compliance issues can arise even before an applicant is hired. For example, Illinois recently adopted a “
Keep personnel files confidential and secure. Employee personnel files contain sensitive information and should be carefully maintained to protect employee privacy, especially as more employers shift to digital recordkeeping. Only management should have access to personnel files, and they must take care that when reviewing the file, its contents are not visible to other employees.
Maintain an employee handbook and keep it updated. A good employee handbook effectively communicates an employer’s workplace expectations, policies and procedures, and can provide an employer’s best defense against many employee claims. Employers should distribute the handbook to all employees upon hire, and should review and update the handbook as often as necessary. Employers should require a signed and dated receipt for the handbook from each employee and save the receipt to the employee’s personnel file. A strong employee handbook helps ensure that uniform policies are in place, that the policies are communicated to all employees in writing, and that employees are aware of the employer’s expectations for their employment.
Is the work performed by the worker an integral part of the putative employer’s business? The more important the worker’s produce is to the alleged employer’s business, the more likely that worker is an employee. That doesn’t mean the worker’s work must be unique or performed at the employer’s premises. In fact, even work capable of being recreated by a multitude of other workers, or performed from the comfort of one’s home, may be integral to the employer’s business.