I just read the white paper that AIG provided to back up its claim, in its letter to Secretary Geithner, that its hands were tied when it came to paying bonuses.
I found it sort of amazing that the white paper didn't cite a single passage from any of the contracts to show that they couldn't be abrogated, or the consequences of non-payment. I would assume a multimillion dollar employment contract would have some language about the conditions for the bonuses, and how disputes over refusal to pay are settled. I'm not saying that the binding language isn't there in the contracts, just odd that they wouldn't quote or cite it if it was.
Indeed, the only really specific legal claim, and the only case law cited in the white paper, was that non-payment might violate the Connecticut Wage Law. (That's the thing that's posted on the bulletin board in the AIG break room, I presume.) The white paper cites a case (Schoonmaker v Brunoli) in which carpenters weren't paid on a UConn construction project.
The Connecticut Wage Law apparently provides for up to double damages, so because a carpenter got $44,000 in damages when he wasn't paid $22,000 that he was owed, therefore we're to believe, some judge in Hartford might declare that AIG owed its executives not $165 million, but $330 million! It's a brutal and unyielding master, the fearsome Connecticut Wage Law, and apparently neither the outrage of the president and millions of Americans, nor the cleverness of Wall Street lawyers can beat it.
But out of curiosity, I typed the phrase "Connecticut Wage Law" into Google, and the first entry was the "Connecticut Employment Law Blog," written, assuming we can trust identity on the Internet, by a Connecticut employment lawyer. And the most recent entry, from December: "BREAKING: Conn. Supreme Court Rules That Bonuses Based on Subjective Factors Are Not Wages." The lawyer/blogger says that the court held that if bonuses "are not linked to the 'ascertainable efforts of a particular employee' the bonuses are NOT wages," and therefore not subject to the law.
Now, I won't get any deeper into this, because I'm not even a lawyer, much less an expert on the majestic Connecticut Wage Law (and nothing on TAPPED should be construed as legal or investment advice), but let's just say that the question of Connecticut law as it affects bonuses seems right now to be very contested territory, with some conflicting precedents. If the Connecticut Wage Law is all AIG has to back up its claim, it seems like a very shaky foundation.
-- Mark Schmitt
