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Supreme Judicial Court Clarifies Commissions and Trebling Issues

Issue March/April 2020 April 2020 By Richard S. Loftus
Labor & Employment Section Review
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Richard S. Loftus

By now, all practitioners of employment law in the Commonwealth of Massachusetts are familiar with the Massachusetts Wage Act, M.G.L. ch. 149, §148 et seq. To those practicing outside the sphere of employment law, the Massachusetts Wage Act, a statute originally passed to thwart the ill effects of employers paying their employees wages in large lump sums and to ensure that employees receive regular payment of their earned wages,1 has become so much more in recent years. Following the Legislature’s enactment of mandatory treble damages for violations of the Wage Act in 2008, litigation involving the Wage Act has increased substantially.2 It has become the vehicle by which employees have sought to remedy their either real or imagined deprivation of overtime pay, tips, vacation pay, and final pay on the day of termination. In one area, however, the stakes are particularly high — the alleged deprivation of earned commissions. Commissions on some deals, particularly in the software and technology sectors that make up such a large part of the economy of the commonwealth, can easily stretch into hundreds of thousands of dollars for a single sale.

The Massachusetts Supreme Judicial Court (SJC) recently demonstrated just how high the stakes can be in Wage Act commissions cases. On Feb. 12, 2020, the SJC decided Parker v. EnerNoc Inc., 484 Mass. 128 (2020). This case had two key holdings. First, the SJC held that despite the existence of a written sales commission plan with an integration clause, under the facts and posture of this case, the course of conduct of the parties and internal communications were nevertheless sufficient to support a jury finding that there was a contractual obligation to pay commissions, sufficient to support a Wage Act award of damages, which did not appear anywhere in the written sales plan. The second holding is that a commission that is not “due and payable” at the time of an employee’s termination may nevertheless constitute “lost wages” and be trebled under the Wage Act if the employer unlawfully terminated the employee in order to prevent her from receiving that commission.

 In Parker, the employee sued her former employer and two of its officers, alleging inter alia3 that employer violated the Wage Act by failing to pay her the full amount of commission she was owed and by terminating her employment in retaliation for complaining about the unpaid commission. A jury trial in the Superior Court returned a verdict against the employer and one of the defendant officers, awarding plaintiff commissions damages in the amount of $25,063.34 as the amount earned but not paid under the sales commission policy (which was trebled by the trial judge) and $349,098.48 as the amount owed under the company’s so-called “true-up” policy (which was not trebled, as it was not “due and payable” at the time of the termination).4 The plaintiff appealed the judge’s refusal to treble the damages owed under the true-up policy. The defendants appealed from the denial of their motion for judgment notwithstanding the verdict (JNOV), arguing that the company did not have a true-up policy and, even if it did, it had no obligation to make an additional commission payment of $349,098.48 to the plaintiff.

The Wage Act Can Encompass Commissions Due via Company Practice, Even if Those Commissions Are Disclaimed by the Written Commissions Plan

The first key holding of the SJC was that the evidence supported a jury finding that the employee was entitled to the additional commission under the company’s true-up policy. The language of EnerNOC’s commission plan provided explicitly that a sales customer for a contract that contained an opt-out clause after a certain period of time meant that the employee would “only be eligible for a . . . [c]ommission for the term length guaranteed by the contract.” The plan also contained an integration clause. After the jury returned a verdict in favor of Parker awarding damages for violation of the true-up policy, the defendants moved for JNOV, which was denied. Despite the language of the commission plan, and despite the integration clause, the SJC affirmed because “there was sufficient evidence for the jury’s finding that the defendants nonetheless had a contractual obligation to pay commissions under a true-up policy.” This policy purportedly made a salesperson eligible for an additional commission payment based on the entire value of services contract if the contract survived past the customer’s opt-out date (i.e., if the client did not opt out after the first full year). The existence of this policy was supported by the testimony of the then-senior vice president for marketing and sales, as well as internal e-mails indicating that there was such a policy. Thus, under the standard of review for a denial of a JNOV, viewing the evidence in the light most favorable to plaintiff, the SJC upheld the jury’s verdict.

Though perhaps dictated by the unfavorable standard of review, this holding may actually disadvantage employees in the future, rather than protect them. It is, of course, impossible to anticipate the business circumstances of every single deal that might occur and, as such, a written commission plan cannot be realistically expected to cover every possible eventuality. It would only be prudent, therefore, to advise an employer not to pay any commission or payments beyond what it is explicitly called for in the written plan for fear of modifying the written plan through a course of conduct. It would also be prudent to build into a commission plan an express statement that the business circumstances surrounding each sale are unique, and any discretionary decision to make a payment linked to a sale may in no way be relied upon in any future instance as a binding precedent of how payments are calculated or made.

Wage Act Retaliation Damages May Constitute “Lost Wages,” But Only in Limited Circumstances

The second (and perhaps more visible) holding of Parker was the finding that the $349,098.48 amount awarded to the plaintiff as a result of lost commission under the true-up policy constituted “lost wages” and was thus trebled under the Wage Act. Pursuant to M.G.L. c. 149, § 150, a prevailing employee shall be awarded damages for violations of the Wage Act, and damages for “lost wages” are trebled. Unlike other types of compensation covered by the Wage Act, however, commissions are, by their nature, contingent and thus typically are only considered to be wages after they have “been definitely determined and due and ha[ve] become payable to [the] employee.” Tze-Kit Mui v. Massachusetts Port Auth., 478 Mass. 710, 713 (2018). Applying that principle, the trial judge had found that, since the unpaid commission under the true-up policy was not “due and payable” at the time of plaintiff’s termination, it therefore could not be considered a lost wage. The SJC rejected this view, stating that “commissions that are not yet due to be paid may nonetheless constitute lost wages if the employer’s violations of the Act prevent payment of those commissions.” Because the employer had retaliated against the employee by terminating her for complaining about the unpaid commission, and all of the work had already been performed and the deal closed, the only reason that the employee was not still employed at the time the commission became due and payable was the employer’s retaliatory action. The court reasoned that the “fundamental purpose of the Wage Act would be undercut” if employers could escape liability by providing a loophole to achieve favorable results via retaliatory termination.

Under the facts as found by the jury, this result is not particularly novel. What is perhaps more important about this holding, however, is what the SJC did not say. Instead of simply holding that retaliation damages were, as a rule, trebled as “lost wages,” the SJC took great care to tie the trebling to the fact that Parker had performed all of the work for this commission, and the only thing that had prevented it from becoming due and payable was the unlawful termination. It could be inferred, therefore, that unless there were similar circumstances — i.e., all of the work to earn the wage had already been performed, and it was only the employer’s unlawful conduct that prevented the employee from collecting — retaliation damages under the Wage Act, such as back pay, will not constitute “lost wages” and will not be trebled. That rule would be commensurate with the SJC’s holding in Calixto v. Coughlin, 481 Mass. 157, 161-162 (2018). In that case, the plaintiffs argued that Worker Adjustment and Retraining Notification (WARN) Act payments due to them, but not paid, should be considered lost wages under the Wage Act and subject to trebling. The SJC disagreed, stating that “the work must have been actually performed and wage payments must be presently due to trigger the precise requirements and severe penalties of the Wage Act.” Id. at 161. Because WARN Act payments are not tied to work actually performed, they were not earned wages, and were not subject to trebling. Id. The SJC went on:

Characterizing WARN Act damages as back pay does not alter this analysis. Earned wages are not the equivalent of back pay. Back pay compensates a variety of different types of employment law violations under State and Federal law. In general, it compensates employees for amounts that they “normally would have earned” had a violation not occurred (emphasis added). That can be for wages earned but unfairly compensated, as in cases of unequal pay, or for wages not earned, due to the failure to hire because of discrimination or the failure to provide notice, as under the WARN Act. Regardless, back pay is not the same as wages earned but not paid under the Wage Act, which has its own particular and precise requirements.

Id. at 161-162 (internal citations omitted) (emphasis supplied).

As such, given the SJC’s decision in Calixto and the limited basis on which the SJC trebled the retaliation damages in Parker, it would be a reasonable conclusion that back pay or other damages from Wage Act retaliation should not be trebled because they are not tied to work already performed. Nevertheless, employers should exercise care when facing complaints about wages or other potentially protected conduct, as Parker demonstrates the significant potential exposure that can result from retaliation.n

Richard S. Loftus is senior counsel at Hirsch Roberts Weinstein LLP. Loftus’ practice includes advising employers to help them navigate an increasingly complex universe of employment laws and regulations to help minimize their exposure to risk. Loftus also focuses his practice on litigating matters at the trial, appellate and administrative levels. His litigation experience includes employment discrimination cases, wage and hour matters, commercial litigation, intellectual property infringement, internal corporate disputes, civil rights claims, and contractual disputes between companies. Loftus has obtained successful results at all levels of matters, including defending favorable results on appeal. Contact Loftus here.

The author wishes to thank Julia Russo, currently a 3L at Northeastern University School of Law, for her significant contributions to this article.
                                            

1 Cumpata v. Blue Cross Blue Shield of Mass. Inc., 113 F. Supp. 2d 164, 167 (D. Mass. 2000).

2 https://masslawyersweekly.com/2013/08/15/swell-in-employment-suits-amplified-in-mass/

3 The employee also asserted claims for gender discrimination, breach of contract, and breach of the covenant of good faith and fair dealing.

4 The jury also awarded other damages not relevant here.