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AIG'S ACTUAL CLAIM: CONNECTICUT MADE US DO IT.
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
COMMENTS (10)
Connecticut was probably used as an example of labor laws; from those I've looked at, it's not atypical for wage laws to carry a penalty, an attorney fee provision (the employee recovers attorney fees if she prevails), or both.
That's not to say that I find the legal reasoning particularly compelling. The analysis has me imagining Geithner saying, "Give me the cover I need to justify not standing up to you," and getting this paper from a smirking Liddy.
Really, if these bonus contracts are that bulletproof, not just for this year and for next, you have to ask, "What was AIG thinking?" Sane employers don't write bonus contracts like this. Nobody has even tried to pretend that this was the industry standard.
Is it paranoid that I suspect that this was part of a plan to ensure bloated compensation made in anticipation of a government bailout?
Posted by: Aaron | March 17, 2009 11:28 AM
I appreciate the reference. And yes, I'm a real Connecticut Employment Law attorney. I'll post something more about this later today.
Posted by: Daniel Schwartz | March 17, 2009 1:14 PM
The UAW contracts with GM and Chrysler were totally unbreakable, but the government forced the renegotiation of those contracts as a condition of providing bailout money. Why hasn't the same been done here? You'd be hard-pressed to find a bigger fan of Obama than me, but they've really messed up here.
Posted by: laborlawyer | March 17, 2009 2:26 PM
Connecticut isn't cited as a hypothetical example. It's cited because AIGFP's U.S. offices are located in Connecticut and so that would be the governing law in the jurisdiction.
Posted by: Brittain33 | March 17, 2009 6:33 PM
I will personally vouch for Daniel schwartz, as when I was involved in a labor dispute, I attempted to retain his services. He's well-respected as an employment attorney in CT, and I have no doubts as to his existence. Fortunately my issue was resolved amicably (w/o attorneys), but he gave me some good advice when we were in contact.
Posted by: Dave Pernal | March 17, 2009 9:57 PM
The AIG retention "bonuses" are linked to the 'ascertainable efforts of particular employees.
This witch hunt is not being conducted carefully enough.
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