The $165 million AIG bonus flap that has caused outrage around the nation has its roots in a provision of Connecticut labor law that political leaders say needs to be changed.
The embattled insurance giant, which has received about $170 billion in federal bailout money, has said it is legally bound to pay the bonuses because of a provision in the Connecticut Wage Act. Many of those receiving the bonuses work for AIG's financial products unit in Wilton.
If AIG failed to pay the bonuses, under state law the company could be forced to pay a double penalty, legislators said.
"The state of Connecticut should not be used as the scapegoat or the excuse for AIG to pay these outrageous" bonuses, said House Republican leader Lawrence Cafero of Norwalk.
Cafero, Senate Republican leader John McKinney of Fairfield, and Gov. M. Jodi Rell are calling for lawmakers to change the act, Section 31-72. The lawmakers want to exempt any companies that have received bailout or federal stimulus money from the double-penalty provision in the law.
"We in Connecticut can do what Congress failed to do — which is protect taxpayers from having their hard-earned money used for these exorbitant bonuses," McKinney said.
Derek Slap, a spokesman for Senate President Pro Tem Donald E. Williams Jr. of Brooklyn, said Senate attorneys are already studying the issue. "We obviously need more details," Slap said Tuesday.
But Connecticut Attorney General Richard Blumenthal went further, dismissing AIG's explanation and saying he would investigate.
"AIG is shamelessly shielding itself behind the Connecticut Wage Act — a joke of a justification for squandering scarce taxpayer resources," he said. "We should use any and every well-founded legal weapon to recapture these baseless bonuses at AIG."
Connecticut is generally known to have among the more stringent wage-payment laws in the nation, though officials at the state Department of Labor said a variety of factors would need to be weighed in determining if the state law applied to the AIG situation.
"Our first step is to determine if the bonus is a wage," said a state Department of Labor official.
"If it's a wage, it's based on performance, production and efficiency"" the official said. "It has to tie directly to your performance, that you met certain standards and certain goals in order to turn that into a wage. ... Companywide performance is less likely to be a wage."
An AIG spokesman did not return telephone calls regarding the claims Tuesday afternoon.
But in a document released to The Courant through McKinney, the company said it had been advised by outside attorneys that "a breach of the retention plan would subject it to claims for not only the contractually owed payments, but also penalties and fees under the Connecticut Wage Act."
"The Wage Act provides for the recovery of double damages and attorneys' fees when wages are improperly withheld and the employer's refusal to pay wages lacks a good-faith basis," the company's five-page document said. "In addition, individual managers who decide to withhold wages that are due are individually liable for violation of the Wage Act."Copyright © 2014, Los Angeles Times