In a 5-4 decision, the Washington Supreme Court has ruled in an employer’s favor and clarified what are, and are not, statutory “wages” and unlawful wage “rebates” under Washington State’s Wage Rebate Act (“WRA”), RCW 49.52 et seq.  The case is LaCoursiere v. CamWest Development, No. 88298-3 (Wash. Oct. 23, 2014) (slip op.).  Camwest Development (“CamWest”) was represented by Stoel Rives attorneys Jim Shore and Karin Jones.

CamWest, a real estate development company, created an optional bonus program via individual written contracts with its participating managers. The bonus program was intended to provide the potential for larger manager bonuses in profitable years, but it also carried a downside risk of smaller, or no, bonuses in leaner years.  Participating managers’ contracts made expressly clear that the decision whether or not to award an annual bonus, and the amount of any bonus, was in CamWest’s discretion.  Managers did not have to participate in this higher reward/higher risk bonus program and could instead choose to receive a safer, set bonus.  Managers who chose to participate in the optional bonus program were required by its terms to contribute a percentage of each annual bonus into a capital account in a separately formed managers LLC.  The LLC would in turn loan money to CamWest to be invested in real estate projects that CamWest would develop.  The hope and intention at the time was that this arrangement would yield higher profit and bonuses for participating managers. Manager contributions to the LLC vested at 20% per year.

The plaintiff, Shaun LaCoursiere, was a CamWest project manager.  Things went well for everyone until the latter part of 2008 when the stock market took a severe downturn and the construction industry crashed.  Rather than terminate LaCoursiere, CamWest offered him a laborer job so that his capital contributions could continue to vest.  Unfortunately, LaCoursiere’s attendance also took a severe downturn, even after CamWest counseled him about needing to show up for work as scheduled.  After repeated warnings, CamWest fired LaCoursiere.  At the time, LaCoursiere was only 60% vested in his LLC capital account.  LaCoursiere filed a lawsuit claiming that the failure to return his unvested contributions to the capital account amounted to an unlawful rebate of wages under the WRA.

The WRA is an anti-kickback statute prohibiting the employer from recollecting any part of wages paid to an employee.  To be protected under the WRA, a “wage” must be distributed to the employee and then the employer must collect a “rebate” from that paid wage.  The Washington Supreme Court affirmed the lower courts and ruled in CamWest’s favor, finding that LaCoursiere’s wages were not rebated under the profit sharing plan. The court found that the profit sharing plan presented in this case was not the type of “rebate” that anti-kickback statutes are designed to address because LaCoursiere’s unvested interest reverted to the separate LLC and not to his employer, CamWest.  The four dissenting justices opined that a remand for trial was appropriate because the court could not tell from the record whether CamWest and the LLC were separate legal entities in mutually beneficial transactions.

Another issue raised by this case is that the WRA only protects employees who have not “knowingly submitted” to an employer’s wage rebate practices profit share plan.  In addition to ruling in CamWest’s favor on the rebate issue, the trial court and Court of Appeals previously ruled in CamWest’s favor because LaCoursiere had voluntarily agreed to invest a portion of his bonus into the LLC bonus plan.  The Supreme Court, however, did not need to reach this issue because it found there was no rebate.

The lower courts also had agreed with CamWest’s argument that, because the bonuses were discretionary, they fell outside the definition of “wages” under the WRA.  The Court of Appeals ruled that “[u]nder these circumstances, the bonuses were mere gratuities: they were not given regularly, did not create an implied contract that they would be paid every year, and LaCoursiere could not have relied upon them, given he knew CamWest had no obligation to provide them.” The Supreme Court, however, clarified that even discretionary bonuses, once they are paid for work performed, constitute wages under the WRA.  Going forward, employers in Washington will no longer be able to argue that discretionary bonuses, once paid, are outside the purview of the wage statutes.  It remains an open question of whether such bonuses are wages if they are arguably earned but have not yet been paid.  However, it is likely that the Washington Supreme Court, if faced with such a fact pattern, would find that the unpaid bonus were wages.

Finally, the Washington Supreme Court ruled consistently with its other very recent decisions and found that a prevailing party attorney’s fees clause in an employment agreement cannot circumvent the fact that only a prevailing plaintiff can recover attorney’s fees under Washington’s wage statutes.  It is common, particularly in executive employment agreements, for an employer to include a prevailing party fee clause.  In addition to including a severability clause that would carve out any unlawful contract provision and preserve the rest of the contract, in order to avoid attacks on a contract’s enforceability it may be prudent for employers with employment contracts governed by Washington law to specifically exclude from a bi-lateral prevailing party fees clause all claims based on statutes under which only a prevailing plaintiff can recover fees.