Attorneys for Appellant Attorneys for Appellee
Jeffrey R. Gaither Karl L. Mulvaney
T. Joseph Wendt Nana Quay-Smith
Indianapolis, Indiana Candace L. Sage
Indiana Supreme Court
Michael E. Highhouse, M.D.,
Appellant (Plaintiff below),
Midwest Orthopedic Institute, P.C.,
Appellee (Defendant below).
Appeal from the Wayne Circuit Court, No. 89C01-9912-CP-191
The Honorable Douglas VanMiddlesworth, Judge
On Petition To Transfer from the Indiana Court of Appeals, No. 89A01-0202-CV-75
May 5, 2004
Factual and Procedural Background
We hold that a bonus calculated on the basis of both the employees
production and also the expenses of the overall business is not a wage
governed by the Indiana Wage Payment Statute.
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 MOIs collections for services
rendered by Highhouse to MOIs patients, less an allocation of expenses of MOIs
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. Highhouses 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 attorneys 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 Highhouses 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
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 employees right to compensation
vests when the employee renders the services. See, e.g., Baeslers Super-Valu v. Ind.
Commr 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, Highhouses 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 Highhouses services.
A post termination bonus is to be calculated in the same manner as
Highhouses 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 MOIs 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 contracts 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. Highhouses Bonus is not a Wage
Highhouses 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 attorneys 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 employers 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. Highhouses bonus, which depended partially upon
results of MOIs 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 [Highhouses] 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 Highhouses productivity and also on
expenses of MOIs operations, presumably allocated based on revenue. Highhouse had no
control over most of these expense items and they obviously affected MOIs bottom
line. Thus, while it is clear that Dr. Highhouses efforts contributed to
the calculation of his bonus, they were not the sole factor. Billings
for Highhouses services were certainly substantially offset, and could at least theoretically have
been outweighed altogether by his share of MOIs 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) (plaintiffs 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
There are also practical reasons why a bonus of this sort is not
a wage. A bonus payment tied to results of the employers 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 Highhouses 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 patients 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 employees 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
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.