Summary
holding that there was no breach of the implied covenant of good faith and fair dealing where commissions were not yet earned by the employees prior to their termination
Summary of this case from Beaupre v. Seacoast Sales, Inc.Opinion
SUCV2015-2667 SUCV2015-3417SUCV2016-3297 [1] 137853
07-25-2017
Donald Smith et al. v. Unidine Corporation
MEMORANDUM AND ORDER ON SUMMARY JUDGMENT
Edward P. Leibensperger, Justice
In this action under the Massachusetts Wage Act G.L.C. 149, § § 148, 150 (the " Act"), the employer, Unidine Corporation, and plaintiffs, former employees, cross move for summary judgment. The principal issue presented is whether the former employees are entitled to recover for the non-payment of commissions and a bonus. The employer says they are not because of the terms and conditions of the governing agreement for calculating and paying commissions and bonuses. The former employees assert that they should be paid the commissions as a matter of law under the Act.
Plaintiffs also assert claims for breach of contract, breach of the implied covenant of good faith and fair dealing, and " quantum meruit/unjust enrichment." All claims are for non-payment of commissions or bonus.
The resolution of the motion turns on both the terms and conditions of the written agreement regarding commissions and bonuses as well as the terms of the Act. The Act requires the timely payment of wages. Wages include commissions " when the amount of such commissions . . . has been definitely determined and has become due and payable . . ." Id. The terms of the written agreement determine what has been " definitely determined" and what is " due and payable."
BACKGROUND
The following facts, drawn from the parties' Statement of Undisputed Material Facts are undisputed.
Unidine is in the business of providing dining management services to institutional clients such as hospitals, senior living facilities, universities, etc. Unidine employs Directors of Business Development (" DBDs") to sell the services of Unidine and to develop and maintain relationships with client customers as the contracts with the client customers are performed. Plaintiffs, Donald Smith and Matthew Ales, were employed by Unidine as DBDs.
Signed employment letters in the record indicate that Smith and Ales were employees at-will and that Massachusetts law governs the agreements.
DBDs earn a base salary and are eligible to participate in Unidine's 2014 Sales Commission and Bonus Plan (the " Plan") subject to its terms and conditions. DBDs, including Smith and Ales, acknowledge and sign the Plan each year. All of plaintiffs' claims arise under the 2014 Plan. The Plan applies to contracts with client customers executed in 2014.
Smith began work at Unidine on April 14, 2014, as an at-will employee in the position of DBD. He was paid a base salary of $125,000 per year, and a signing bonus of $25,000. Smith was terminated from employment on May 29, 2015.
Ales began work at Unidine on January 3, 2012, as an at-will employee, in the position of DBD. His base salary was $80,000 per year and was increased to $90,000 on January 1, 2015. In February 2015, Ales voluntarily resigned from Unidine.
The Plan
The Plan provides for the payment of commissions to DBDs subject to its terms and conditions, based upon obtaining and maintaining for one year a new client account for Unidine. Under the Plan, " [c]ommissions will be earned ratably over a twelve (12) month period. As such, commissions will be paid on a monthly basis over the first year following execution (signed by both parties) of the contract and commencement of service by Unidine." Plan ¶ E. The Plan further provides that commission payments " shall commence following the end of the first full month of the account's operation." Id.
This quotation is from the Plan executed by Smith. The Plan executed by Ales is slightly different. It states " [c]ommissions will be earned and paid ratably over a twelve (12) month period as described in this section."
Paragraph E of the Plan lists a number of contingencies that must occur before the first commission payment is due. Among those contingencies are the following:
--execution of a signed contract;
--planning and execution of a transition meeting by the DBD with the client and Unidine operations personnel;
--development of the first Unidine invoice to the client;
--" invoicing and collection of initial Payment . . ." Id. at ¶ E6 (emphasis in original);
--completion of the Commission Worksheet and Commission Submittal Checklist.
The Plan recognizes that the DBD has a continuing interest in the successful performance of the contract. For example, the Plan allows the company to terminate commission payments if the customer fails to pay any Unidine invoice or accrues an account receivable in excess of the payment terms. Also, if the new account is terminated prior to the completion of twelve (12) months of commission payments, " any commission payments made will be returned to the company over the same number of months as paid as well as any bonus payments. During this period, in the event the Director of Business Development leaves the company for any reason, any commission and/or bonus balance due the company will be due immediately to the company and may be used to off-set any compensation due." Id. Moreover, both Smith and Ales testified in their depositions to the effect that they worked closely with the operations staff and maintained contact with the customer as part of their jobs.
The application of this provision requiring return of commissions is subject to the discretion of the officers of the company.
In particular, Ales testified that maintaining relationships was " part of my job" and gave the example of going to the location of a customer (Three Pillars) and staying there for two months to " smooth things out" when operations were going poorly.
Finally, the Plan provides that " [t]o be eligible for Commission Payment or bonus the participant must be employed by Unidine at the time the Commission Payment or bonus is processed and paid as described in paragraph E--Commission Payment." Plan, ¶ B.
With respect to the payment of either a quarterly or annual bonus, the Plan is sparse. In two paragraphs, reference is made to another, unspecified, " plan" which appears to include goals for revenue to be generated by the DBD (although there is no definition of how the revenue targets are set or calculated). If the DBD exceeds the goals by certain percentages (e.g., 125%, 150%, 200%), the DBD is " eligible" for payment of the bonus. The Plan does not explicitly reserve any discretion to the company or its officers as to whether the revenue goals were met or exceeded.
Facts With Respect to Smith
Smith's sole claim is that he is owed a commission with respect to a single customer, Southeast Missouri Hospital. It is undisputed that Smith was responsible for the sale of services to the hospital and that he worked to get the operations team set up to have a successful and smooth start-up and launch. The hospital signed a contract with Unidine on November 24, 2014, but dining services were not commenced until March 22, 2015. The hospital paid the initial advance payment on March 24, 2015, and paid the first monthly invoice under the contract on Apri1 20, 2015. After Smith's employment was terminated on May 29, 2015, Unidine sent Smith a check in an amount (Smith concedes) that represents the value of two months of commission payments (April and May). No further commissions were paid to Smith. Accordingly, Smith's claim in this lawsuit is for commissions that he alleges would have been paid to him in the ten months after his termination. In his memorandum in opposition to Unidine's Motion for summary judgment (and in support of his cross motion for summary judgment), Smith states " [w]hile Smith was not employed at the time his commission payment was due, all other contingencies were satisfied." Plaintiffs' Memorandum, p. 10.
Smith makes no claim for an unpaid bonus.
Unidine states that Smith was terminated because Smith failed to pursue a business opportunity for the company and because of Smith's weak sales pipline and disagreements with senior management. Smith contends that he was not given any reason for his termination. In any event, Smith does not allege that the termination of his at-will employment was wrongful or motivated by bad faith.
Facts With Respect to Ales
Ales claims that he is owed commissions with respect to five (5) client customers of Unidine. Ales also asserts that he is owed a bonus under the Plan for the year, 2014. The five customers are Wellspring, Cedarbrook, Bethesda, Three Pillars and Presence Health. Unidine concedes that Ales performed some work to obtain each of these accounts. The undisputed facts regarding each of the customers, however, are the following.
Wellspring
The contract between Wellspring and Unidine was entered into on September 30, 2015. Ales voluntarily left the employment of Unidine seven months earlier, on February 18, 2015. No commission was paid to Ales.
Cedarbrook
While Cedarbrook entered into a contract with Unidine on September 22, 2014, the Cedarbrook facility that was the subject of the contract had not been built. Unidine began to provide dining services at Cedarbrook on August 10, 2015, six months after Ales left Unidine. At the time of Ales' resignation, Cedarbrook had not made its initial payment under the contract, a first invoice had not been developed and Ales had not completed a transition meeting or commission worksheet. No commission was paid to Ales.
Bethesda
Bethesda entered into a contract with Unidine on September 30, 2014. Unidine began providing services on October 18, 2014. Ales earned his first commission on this account for the month of December 2014. He was also paid a commission on this account for the month of January 2015. Ales resigned from employment on February 18, 2015 and was not paid a commission for February or any subsequent month.
Three Pillars
This contract was entered into on February 20, 2014. Services began on May 1, 2014. Ales was paid his first commission on this account in June 2014. He continued to receive commission payments through January 2015. When Ales resigned in February 2015, he was not paid commissions for February or any subsequent month.
Presence Health
Unidine entered into a dining service contract with Presence Health on January 20, 2014. Ales began receiving commissions on this account in April 2014 and was paid commissions earned for the months of April through November 2014. In 2014, Presence Health fell behind on payments owed to Unidine under the contract. Pursuant to paragraph E of the Plan, commissions were suspended in December 2014 and January 2015 (" Commission Payment shall terminate at the earlier of any of following events: . . . 3. Non-payment of any Unidine invoices by the client during the twelve (12) month term of the Commission Payment"). Commission payments did not resume before Ales resigned. No commissions were paid to Ales on this account after November 2014.
Ales also claims that he earned a bonus in 2014 under the terms of the Plan that was not paid by Unidine. The dispute on this issue is whether Ales should receive credit for the sale of the Presence Health account in the calculation of total sales to determine whether a bonus is owed. Ales admits that without credit for the Presence Health account against his 2014 sales plan, he does not qualify for any quarterly or annual bonus in 2014. According to the Affidavit of Steven Servant, Unidine's Senior Vice President, he informed Ales that the Presence Health sale would not count toward Ales' bonus eligibility in 2014. Servant avers that he made that decision " pursuant to the discretion given me under the Plan." Servant Aff. ¶ 42. Ales admits that he did not include the Presence Health sale on his internal monthly reports of business sold in 2014, at the direction of Servant. Ales denies, however, that he was told that Presence Health would not be counted for purposes of his bonus calculation.
In sum, Smith seeks payment of commissions in the amount of $44,424. Ales seeks payment of commissions in the amount of $139,412, and payment of a bonus for 2014 in the amount of $30,000. To the extent the non-payment of the amounts is found to be in violation of the Act, any award is subject to automatic trebling, and an award of reasonable attorney fees.
DISCUSSION
Summary judgment is appropriate where there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Mass.R.Civ.P. 56(c); Cassesso v. Commissioner of Corr., 390 Mass. 419, 422, 456 N.E.2d 1123 (1983). In this case, the parties cross move for summary judgment. Accordingly, both sides assert that there are no disputes of fact material to the resolution of the motions.
I. Wage Act Claims
The Wage Act, G.L.c. 149, § 148, requires employers to pay employees all earned wages on a weekly or bi-weekly basis. Massachusetts courts generally recognize that the purpose of this statute is to prevent the unreasonable detention of earned wages by employers. Weems v. Citigroup, Inc., 453 Mass. 147, 150, 900 N.E.2d 89 (2009). The Wage Act does not, however, define the term " wages." Thus, courts have considered various kinds of compensation to determine whether the compensation should be held to be a " wage" under the Act.
The Wage Act includes some exceptions to this general requirement, e.g., executive and professional employees may request payment on a monthly basis.
As referenced above, " commissions" are specifically recognized as being covered by the Act G.L.C. 149, § 148, ¶ 4. Thus, commissions must be timely paid to an employee " when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due and payable." Id. To be " definitely determined" a commission must be " arithmetically determinable." Wiedmann v. The Bradford Group, Inc., 444 Mass. 698, 708, 831 N.E.2d 304 (2005). Commissions are " due and payable" when " any contingencies relating to their entitlement have occurred." McAleer v. Prudential Insurance Co. of Am., 928 F.Supp.2d 280, 288 (D.Mass. 2013) (quoting cases). Accordingly, a court applies the terms of the contract to determine whether the commission is " definitely determined" and " due and payable." Gallant v. Boston Executive Search Assoc., Inc., 2015 WL 3654339, *7 (D.Mass. 2015).
A bonus that is discretionary or contingent upon the employee remaining with the company for a defined period of time has been held not to be a wage under the Act. Weems, 453 Mass. at 153-54, citing Harrison v. Net Centric Corp., 433 Mass. 465, 466, 473, 744 N.E.2d 622 (2001) (compensation that vests over time is not earned until contingency of continued employment is met); see also Sheedy v. Lehman Bros. Holdings, Inc., (D.Mass. 2011) (where bonus payment is contingent upon continued employment, payment is not a " wage" under the Act).
A. Claim by Smith
Smith sold services to Southeast Missouri Hospital which made him eligible to receive commissions. In fact, Unidine paid Smith the commissions owed for the two months following the date when the commissions first became due and payable. At that point, Smith's employment with Unidine was terminated for reasons unrelated to Southeast Missouri Hospital.
Smith argues that commissions are due and payable to him for the following ten months of the contract with Southeast Missouri Hospital even though he was no longer employed by Unidine and could no longer provide any ongoing maintenance of the relationship between Unidine and Southeast Missouri Hospital. He contends that the provision of the Plan that makes a person ineligible to receive commissions after his employment is terminated is a " special contract" that is prohibited by the Act. He relies on a recent case decided by the United States District Court, applying the Act: Israel v. Voya Institutional Plan Services, LLC, 2017 WL 1026416 (D.Mass. 2017). In Israel, the Court granted summary judgment in favor of the employee holding that commissions earned under the terms of a plan cannot be withheld based upon the contract provision requiring the employee to be employed at the time of payment.
Unfortunately for Smith, the facts in his case are significantly different than the facts of Voya . The key finding in Voya was that the commissions were " definitely determined" and " due and payable" for past services provided before the termination of employment. Id. at *7. That the commissions were not paid (as opposed to payable) at the time of the employee's termination of employment was because of the plan's provision mandating payment following the third month " after the month that production activity occurred." Id. at *2. Thus, the Court found that the Act prohibits a contract provision that would relieve an employer of the obligation to pay an earned commission based solely on whether the employee remained employed on the date the company elects to issue payment. In contrast to Voya, Smith's claim fails because the commissions he seeks were not earned and therefore were not " due and payable."
Likewise, Perry v. Hampden Engineering Corp., 90 Mass.App.Ct. 1109, 60 N.E.3d 1196 (2016) (RULE 1:28 Memorandum and Order), relied upon by Plaintiffs, is inapposite. The commission payment recovered in Perry was earned, and thus due and payable, prior to the date of termination of employment.
The Plan provides that commissions are earned ratably over a twelve-month period. The dictionary meaning of " ratably" is " apportioned." Webster's Ninth New Collegiate Dictionary (1991). Giving the words of the contract their common sense meaning, it is beyond argument that commissions were " earned" by the DBD each month as he performed or was available to perform services in aid of the contract. This reading is consistent with the testimony of Smith and Ales as to their ongoing obligations to the client customers. Likewise, Unidine's Senior Vice President (Steven Servant) described in his affidavit the ongoing responsibilities of a DBD as the reason for requiring the commissions to be earned ratably over the twelve-month period. Finally, the Plan's terms regarding the suspension of commissions when the client customer fails to pay invoices and the possible retrieval of paid commissions if the new account is terminated during the twelve-month period further support the conclusion that commissions are earned each month when, with the ongoing maintenance by the DBD, the customer account is fully performing.
Therefore, under the Plan governing the payment of commissions to both Smith and Ales, a commission is not earned when the DBD is no longer employed. Because there is no earned commission after the termination of employment, a commission is not " due and payable" as required for recovery of an unpaid commission under the Act. In the cast of Smith, that means that he is not entitled to the commission payments sought in his complaint. Summary judgment dismissing Smith's complaint is required.
Unidine advances the additional argument that commissions for months after the termination of employment of a DBD are also not " definitely determined" as required by the Act. The argument is based on the possibility that the client customer may change its food requirements, eliminate a facility or otherwise take steps to reduce its invoice from Unidine. If the amount collected from the client customer changes, then the commission changes. I view this as further evidence in support of the conclusion that commissions are earned by the DBD each month he performs services.
B. Claim by Ales
Ales claims commissions are owed to him with respect to five client customers. Three of those customers (Bethesda, Three Pillars and Presence Health) present the identical legal issue discussed above with respect to Smith. That is that commissions were paid to Ales by Unidine for the period of time before he terminated his employment. Thus, Ales was paid commissions for what he earned. He seeks, however, to be paid for commissions for the time after he stopped performing services to Unidine and its client customers when he left the employment of Unidine. Because such unpaid commissions were not earned and, therefore, not " due and payable" there can be no recovery under the Act.
Ales' claims for commissions with respect to Wellspring and Cedarbrook also fail. In both cases, no commissions were earned even for the time before Ales left the company because the Plan required an executed contract and the commencement of services before a commission could be earned. Unidine did not have a contract (in the case of Wellspring) and did not begin to provide services (in the case of Wellspring and Cedarbrook) until after Ales left employment.
Accordingly, Ales' claims for commissions under the Act must be dismissed.
II. Claims for Breach of Contract, Implied Covenant of Good Faith and Fair
Dealing and Quantum Meruit
A. Commissions
The conclusion that commissions were not earned and due and payable to Smith and Ales under the terms of the Plan necessarily resolves plaintiffs' claims for breach of contract. If commissions were not owed to Smith and Ales under the contract terms of the Plan, there also cannot be a claim for breach of the implied covenant of good faith and fair dealing because to allow such a claim would be, in effect, to re-write the parties' contract. The implied covenant in every contract protects the parties' reasonable expectations under the contract but does not " create rights and duties not otherwise provided for." Bohne v. Computer Associates Intern, Inc., 514 F.3d 141, 143 (1st Cir. 2008), quoting Uno Restaurants, Inc. v. Boston Kenmore Realty Corp., 441 Mass. 376, 385, 805 N.E.2d 957 (2004). Similarly, " [r]ecovery in quantum meruit presupposes that no valid contract covers the subject matter of a dispute. Where such a contract exists, the law need not create a quantum meruit right to receive compensation for services." Boswell v. Zephyr Lines, Inc., 414 Mass. 241, 250, 606 N.E.2d 1336 (1993).
Smith makes clear in his Third Amended Complaint that he does not allege wrongful termination of his employment. He avers that " while not terminated in bad faith, [he] was not terminated with good cause." Id. at ¶ 45. Moreover, the application of the implied covenant of good faith and fair dealing as described in Gram v. Liberty Mutual Ins. Co., 391 Mass. 333, 335, 461 N.E.2d 796 (1984), protects only an employee's right not to be deprived of compensation for past services. Because plaintiffs were not denied compensation for past services under the terms of the Plan, their claims for commissions alleging breach of contract, breach of the implied covenant and quantum meruit fail.
B. Ales' Claim for Bonus
At oral argument, counsel for Ales stipulated that Ales' claim for an unpaid bonus does not arise under the Wage Act. Instead he maintains this claim under theories of breach of contract, breach of the implied covenant of good faith and fair dealing, and quantum meruit.
Unlike the claims for unpaid commissions, Ales' claim for an unpaid bonus raises a genuine issue of material fact that precludes summary judgment. The fact issue presented is whether, in the calculation of the bonus for 2014, Ales was entitled to have the company include the revenue received from the Presence Health account. Unidine admits that if the Presence Health contract had counted towards Ales' sales quota, he would have been eligible to receive bonus payments under the Plan. Unidine argues, however, that its management determined that Presence Health should not be counted in the bonus calculation and that Ales was so informed. Ales disputes that he was told that Presence Health would not be counted in his bonus calculation. In his affidavit, Ales states that " I had no reason to believe that Presence Health would not be counted towards my bonus threshold."
Unidine argues that it had the discretion under the Plan to determine which accounts would be counted for purposes of calculating a DBD's bonus. When asked at oral argument to identify the provision in the Plan upon which Unidine relies for such discretion, Unidine's counsel pointed to ¶ R:
Amendments, Revisions and Interpretation of the Plan: The President & CEO of Unidine is the sole interpreter and arbitrator of the general and specific provisions of the Plan and has the right to amend, withdraw, and modify The [sic] Plan at any time without notice.
As can be seen, this paragraph does not give Unidine the explicit discretion to refuse to pay a bonus that was otherwise earned under the Plan. To the extent ¶ R attempts to reserve to management the right to " interpret, " " withdraw, " or " modify" the Plan, such power must be viewed in the light of the implied covenant of good faith and fair dealing inherent in every contract.
The Plan states that DBDs will he " eligible" for quarterly and annual bonus payments by achieving 100% or more of a certain amount. While not explicitly stated, the amount which is the base for calculating the bonus appears to be the " gross operating budget" for the client customer. The Plan states that " [o]nly signed, opened accounts, including add-ons, will count toward achievement of plan for both quarterly and annual bonuses." Plan ¶ L. Other then those conditions, the Plan says nothing further about how the client customer's " gross operating budget" is calculated or attributed to a DBD. In sum, the summary judgment record is insufficient to determine, as a matter of law, whether Ales earned a bonus. Ultimately, whether Ales is entitled to a bonus will depend on the parties' understanding of terms of the Plan and the reasonable expectations of the parties as to how the bonus calculations were to be made. Summary judgment must be denied with respect to Ales' claim for a bonus based on breach of contract and breach of the implied covenant of good faith and fair dealing.
Ales' bonus claim based on quantum meruit must be dismissed because the claim is governed by contract principles. York v. Zurich Scudder Investments, Inc., 66 Mass.App.Ct. 610, 619, 849 N.E.2d 892 (2006).
CONCLUSION
Unidine's motion for summary judgment will be ALLOWED, in part, and DENIED, in part. The motion is ALLOWED (a) to dismiss all claims by Smith in Civil Action No: 2015-2667, and (b) to dismiss the Wage Act claim and all other claims for unpaid commissions by Ales in Civil Action No. 2015-3417. The motion is DENIED with respect to the claim by Ales for an unpaid bonus based upon breach of contract and the implied covenant of good faith and fair dealing. Plaintiffs' cross motion for partial summary judgment is DENIED.
Final judgment may enter in Civil Action No. 2015-2667, all claims having been resolved.