Attorneys for Appellant Attorneys for Appellee
Jeffrey R. Gaither Karl L. Mulvaney
T. Joseph Wendt Nana Quay-Smith
Indianapolis, Indiana Candace L. Sage
Indianapolis, Indiana
Norris Cunningham
Indianapolis, Indiana
____________________________________________________________________________
__
In the
Indiana Supreme Court
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No. 89S01-0308-CV-386
Michael E. Highhouse, M.D.,
Appellant (Plaintiff below),
v.
Midwest Orthopedic Institute, P.C.,
Appellee (Defendant below).
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Appeal from the Wayne Circuit Court, No. 89C01-9912-CP-191
The Honorable Douglas VanMiddlesworth, Judge
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On Petition To Transfer from the Indiana Court of Appeals, No. 89A01-0202-
CV-75
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May 5, 2004
Boehm, Justice.
We hold that a bonus calculated on the basis of both the employee’s
production and also the expenses of the overall business is not a “wage”
governed by the Indiana Wage Payment Statute.
Factual and Procedural Background
In 1996, Midwest Orthopedic Institute, P.C. (“MOI”) employed Dr.
Michael Highhouse (“Highhouse”) as an orthopedic surgeon. The “Employment
Agreement” called for a base annual salary of $250,000 payable monthly and
an “annual bonus” for each calendar year payable February 28 of the
following year. In practice, the bonus was paid at the end of each
calendar quarter, based on MOI’s collections for services rendered by
Highhouse to MOI’s patients, less an allocation of expenses of MOI’s
overall operations. The calculation and timing of the bonus payments are
described in more detail below.
On March 2, 1999, Dr. Highhouse gave notice of his resignation
effective on June 30, 1999. After Dr. Highhouse’s departure, MOI continued
to receive collections for his services rendered before that date, but
contended that Highhouse was entitled to no further compensation. Dr.
Highhouse sued, claiming he was entitled to bonus payments based on post-
June 30 receipts, and that the bonus constituted a “wage” entitling him
under the Indiana Wage Payment Statute to a payment of twice the unpaid
amounts plus attorney’s fees. On cross motions for summary judgment, the
trial court held that Highhouse had no right to bonus payments for
collections after the effective date of his resignation. The Court of
Appeals reversed, holding that Highhouse was entitled to these payments and
also that the unpaid bonus constituted “wages” for purposes of the Wage
Payment Statute. This Court granted transfer.
I. Bonus Based on Post Resignation Collections
The Court of Appeals took the view that Highhouse’s right to bonus
payments vested at the time he performed the services that the bonus was
based upon. Highhouse v. Midwest Orthopedic Inst., 782 N.E.2d 1006, 1011
(Ind. Ct. App. 2003). We agree with that interpretation of this agreement.
Accordingly, as a matter of contract law, Highhouse was entitled to a
bonus based on post-resignation collections.
Paragraph 9 of the employment agreement provides:
Termination without Cause. Employer may terminate this Agreement at
any time and without cause effective upon ninety (90) days advance
written notice provided to Employee. In such event, Employee shall
continue to render his services, and shall be paid his regular
compensation up to the date of termination.
MOI claims this clause applies to termination by either the employee or the
employer, and provides for payments to stop at the date employment ends.
First, this provision does not appear to apply to resignation and therefore
does not unambiguously terminate the right to payment after the effective
date of a resignation. By its terms it applies only if MOI terminates the
employee, which can be done only by 90 days notice.
After an employee leaves an employer, bargained-for compensation is
still payable when earned in the absence of a clear and unambiguous intent
to terminate payments when employment ends. Moreover, absent some other
arrangement or policy, when an employer makes an agreement to provide
compensation for services, the employee’s right to compensation vests when
the employee renders the services. See, e.g., Baesler’s Super-Valu v. Ind.
Comm’r of Labor, 500 N.E.2d 243, 246 (Ind. Ct. App. 1986); Die & Mold, Inc.
v. Western, 448 N.E.2d 44, 46-47 (Ind. Ct. App. 1983). Although not
entirely clear on the point, Highhouse’s agreement does not unambiguously
call for termination of bonus payments as of his resignation. Because
there is no clear indication that Highhouse was to be denied a bonus based
on collections after his resignation, as a matter of contract law, the
bonus is payable on post-June 30, 1999 collections for Highhouse’s
services.
A post termination bonus is to be calculated in the same manner as
Highhouse’s earlier bonuses. The contract is less than precise in
providing that the bonus was to be “based upon these factors.” However,
the practice of the parties in calculating the bonus provides reasonably
clear guidance as to its meaning. According to the undisputed affidavit of
MOI’s accountant, the bonus was paid quarterly by deducting “fixed,
variable and personal expenses” from collections “attributable to Dr.
Highhouse.” These expenses were for the most part “allocated costs over
which [Highhouse] had no control.” This course of conduct, which is
undisputed, is a reliable guide to determine the contract’s meaning, and we
accept it as such. See, e.g., Bain v. Memorial Hosp., 550 N.E.2d 106, 110
(Ind. Ct. App. 1990).
II. Highhouse’s Bonus is not a “Wage”
Highhouse’s right to statutory penalties for failure to pay “wages”
every two weeks or semimonthly is another matter. Under the Indiana Wage
Payment Statute, Ind. Code § 22-2-5-2 (1998), “. . . [e]mployees, upon
separation from employment, must be paid the amount [of wages] due them at
their next and usual payday.” Fardy v. Physicians Health Rehab. Services,
Inc., 529 N.E.2d 879, 882 (Ind. Ct. App. 1988). “Wage” is defined by
statute as: “all amounts at which the labor or service rendered is
recompensed, whether the amount is fixed or ascertained on a time, task,
piece, or commission basis, or in any other method of calculating such
amount.” I.C. § 22-2-9-1. Failure to pay subjects the employer to a
penalty of up to double the unpaid wage and attorney’s fees. I.C. § 22-2-5-
2.
The Court of Appeals concluded that a bonus is a wage under the
statute if the bonus directly relates to the time that an employee works,
is paid with regularity, and is not dictated by the employer’s financial
success. Highhouse v. Midwest Orthopedic Inst., 782 N.E.2d 1006, 1013-14
(Ind. Ct. App. 2003) (citing Gurnik v. Lee, 587 N.E.2d 706, 709 (Ind. Ct.
App. 1992)). We think this formulation of the test of “wages” is generally
correct, but leads to the conclusion that Dr. Highhouse’s bonus, which
depended partially upon results of MOI’s operations, is not a wage. MOI
employed a number of physicians at its offices in Connersville and
Richmond. The bonus was to be paid pursuant to paragraph 3(b) of the
agreement. It provides that the bonus was to be “based upon [Highhouse’s]
productivity, collection of accounts, [and] office expenses for both
offices.” “Net Income” was defined as collections for the services of all
physicians less “ordinary and necessary expenses, at all locations.” The
bonus thus turned on both Highhouse’s productivity and also on “expenses of
MOI’s operations”, presumably allocated based on revenue. Highhouse had no
control over most of these expense items and they obviously affected MOI’s
bottom line. Thus, while it is clear that Dr. Highhouse’s efforts
contributed to the calculation of his bonus, they were not the sole factor.
Billings for Highhouse’s services were certainly substantially offset, and
could at least theoretically have been outweighed altogether by his share
of MOI’s expenses.
A “bonus” is a wage “if it is compensation for time worked and is not
linked to a contingency such as the financial success of the company.” Pyle
v. Nat. Wine & Spirits Corp., 637 N.E.2d 1298, 1300 (Ind. Ct. App. 1994).
See Herremans v. Carrera Designs, Inc., 157 F.3d 1118, 1121-22 (7th Cir.
1998) (plaintiff’s pay based not on “his own time or effort or product . .
. but, on the profits of his plant” not a wage); Manzon v. Stant Corp., 138
F. Supp.2d 1110, 1113 (S.D. Ind. 2001) (bonus based on “the attainment of
financial targets established by [the employer] and the achievement of
individual personal objectives” was not a wage). A bonus whose calculation
depends on expenses of the overall operations has the same problem.
There are also practical reasons why a bonus of this sort is not a
“wage.” A bonus payment tied to results of the employer’s overall
operations is not consistent with the time constraints imposed by the Wage
Payment Statute. The statute imposes a penalty when wages are not paid
within ten days of the date they are “earned.” Manzon, 138 F. Supp.2d at
1114. As noted in Manzon, bonus calculations, as a general rule, often
cannot be calculated within such a short period of the time after the
services are performed. Here, because Highhouse’s bonus was based on
collections for his services, not billings, substantially more than ten
days after the services were performed might well be needed before the
bonus amounts can be calculated. Even assuming the bonus was not “earned”
until the patient’s bill is paid, the allocation of expenses for the
overall operations often cannot reasonably be expected to be calculated
within ten days of that time. Moreover, the contract itself called for
payments “annually” and the bonus was paid without dispute only quarterly
over the more than three years Highhouse was employed by MOI. An employer
may not escape the Act by obtaining the employee’s agreement that wages are
not payable within the statutorily prescribed times. But the provision for
annual payments lends support to the view that both parties recognize that
frequent calculation and payment was difficult if not impossible. In
short, the bonus is not a “wage” within the meaning of the Wage Payment
Statute.
Conclusion
This case is remanded to the trial court with instructions to enter
summary judgment for Highhouse on the claim for bonuses calculated on
collections after June 30, 1999, and to enter summary judgment for MOI on
the claim for nonpayment of wages under the Wage Payment Statute.
Shepard, C.J., and Dickson, Sullivan and Rucker, JJ., concur.