Opinion
No. CV02-0470584-S
March 19, 2004
MEMORANDUM OF DECISION ON MOTION FOR SUMMARY JUDGMENT
A motion for summary judgment has been filed against the four counts of this complaint. The first count lies in breach of expressed and implied contract. It is alleged that when the plaintiff first began employment with the defendant company in 1990 that "compensation consisted of commissions resulting from equipment sales, telephone line sales, 'residual commissions,' 'key account' payments and required an ongoing employment relationship with the defendant." The count then goes on to allege that "prior to January 1, 1997 the plaintiff received 'key account' payments of $75.00 for every key account telephone and/or telephone line sale to any major corporation." But on that date the "defendant terminated 'key account' payments and substituted a one-time decreased compensation rate for existing accounts that paid plaintiff $500 per existing key account that maintained greater than 250 lines without regard to the number of additional telephone lines or additional telephones placed into service after January 1, 1997." Reading the counts of the complaint together the basis of the residual commission claim lies in the fact that they "were calculated as a percentage of cellular telephone usage by customers for the term of the contract period." These residual commissions "were paid quarterly based upon the customer's previous quarterly telephone usage." "Prior to May 1, 1999 plaintiff sold cellular telephone service contracts for one, or for two or three year contract periods." But as of that date the defendant "terminated the payment of 'residual commissions' without any compensation for the remaining duration of the contract terms." Thus plaintiff claims he had "earned" these residual commissions and key account payments — in fact he "relied" on these monies as part of his compensation.
The elimination of these payments and commissions constitute a breach of an express and implied contract between the parties.
The second count is made under the same theory; it states when the plaintiff began employment with the defendant, refers to the fact that he was to receive "residual commissions" and "key account payments" then goes on to say that on or about May 1, 1999 defendant reduced plaintiff's compensation further by implementing a base salary plan for sales representatives in plaintiff's division.
Count three is based on a claim of unjust enrichment reiterates the allegations of the first count. It says all the customers the plaintiff sold to had not completed their contracts at the point that Motorola reduced and/or terminated the residual commission program. The plaintiff argues his right to payment under these contracts had vested.
Count four repeats the factual allegations of the first count, and states that "the defendant's published salary range for plaintiff's position was $37,200 to $55,800" and it was the defendant's "policy" . . . "not to pay employees below the published minimum wage for the employee's grade." The count then refers to the unequal bargaining power between the parties. It is then said that "the defendant had a fiduciary duty to the plaintiff to pay plaintiff the published salary amount along with the 'residual commissions' and 'key account' payments."
The defendant has now filed a motion for summary judgment directed against all counts. The standards to be applied in deciding such a motion are well-known. If there is a disputed issue of material fact, the trial court cannot decide it because a party has a right to a trial by jury. If there is no such dispute, however, and the court concludes based on what it has been presented that there is no merit to the plaintiff's claims, the motion should be granted so as to avoid the expense and burden of meritless litigation.
The defendant to its motion attaches various documents prepared by the company including the initial hiring agreement, documents purporting to explain and set forth the compensation programs referred to in the complaint, and large sections of a deposition of the plaintiff. In large part the defendant's legal arguments rely on responses made by Mr. Pontecorvo in his deposition. The court has read all this material, the plaintiff does not question the factual accuracy of any of the references to the deposition, so the court intends to exactly quote the plaintiff's references to the deposition, leaving out citations to pages and documents claimed to support Mr. Pontecorvo's answers. The following facts come out at Mr. Pontecorvo's deposition.
On March 15, 1990, Mr. Pontecorvo applied for a sales position with Motorola. As part of his employment application Mr. Pontecorvo signed an "Agreement" containing the following statement:
I understand that my employment is at the sole discretion of the company and can be terminated with or without notice at any time and for any reason at my option or at the option of the company.
Mr. Pontecorvo generally understood that Motorola could fire him without notice and that he could leave at any time for any reason.
Mr. Pontecorvo concedes that during his employment interviews with Motorola, no one made any representations to him that would have led him to believe that he had an employment contract with Motorola. In addition, Mr. Pontecorvo concedes that no one said anything to him, at that time, which would have led him to believe this compensation structure would never change. Finally, no one made any statements about his future compensation that he relied upon in accepting the job.
On or about April 2, 1990, Mr. Pontecorvo commenced his employment with Motorola as a Personal Communications Representative. As such, Mr. Pontecorvo was responsible for selling cellular phones and services to companies and individuals. Mr. Pontecorvo's position was classified as exempt.
When Motorola hired Pontecorvo it gave him an employee handbook. Mr. Pontecorvo concedes that nothing in the handbook stated that Motorola could not change his compensation or commission structure at any time or for any reason.
(A) Compensation Structure 1. Straight Commissions
When Motorola hired Pontecorvo it paid him an initial salary/draw of $18,000, plus commissions. On or about June 1, 1990, Motorola changed Mr. Pontecorvo's compensation structure to a salary/draw of $3,600, with the remainder of his compensation based upon commissions. Motorola paid Mr. Pontecorvo a commission each time he sold a piece of equipment, i.e., a cellular phone, and each time he sold a cellular phone line with a Motorola service contract.
2. Residual Commissions
In addition to his straight commissions, Motorola paid Mr. Pontecorvo residual commissions. Here, Motorola paid Mr. Pontecorvo a commission based upon his customers' cellular phone usage after they purchased the phone. For example, if one of Mr. Pontecorvo's clients generated a monthly bill of approximately $150 in cellular phone usage, Motorola paid Mr. Pontecorvo a certain percentage of the $150 as a commission. Motorola paid Mr. Pontecorvo residual commissions for the duration of each cellular phone contract that he sold.
3. Key Account Payments
In 1992, Motorola implemented its Key Account Referral Plus Compensation Program. Mr. Pontecorvo defined "key accounts" as large corporate clients. To qualify for key account status, Motorola required prospective clients to meet the following criteria. They must 1) have a potential need for at least 50 cellular phone lines; 2) desire cellular phone service in multiple markets; and 3) enter into a Motorola cellular phone usage contract.
Prior to 1992, only Key Account Representatives or members of the Key Account Group were allowed to service key accounts. Mr. Pontecorvo was not a member of the Key Accounts Group but rather was in the VIP Sales Personnel Group which sold specialized and high-end of cellular phones. After Motorola implemented the new Key Account Referral Plus Compensation Program in 1992, it allowed VIP Sales Personnel including Mr. Pontecorvo to solicit business from large corporate or "key" accounts.
Under the Key Account Referral Plus Compensation Program, Motorola paid Mr. Pontecorvo a $100 commission for each cellular phone and service package he sold, and $75 for each cellular phone service package he sold without any equipment. Motorola also paid Mr. Pontecorvo a residual commission of 5.25 percent on each of his key account sales. During his tenure with Motorola, Mr. Pontecorvo sold Motorola products and services to: Wire Mold Company, Lego Systems, TRC Companies, FAG Bearings, Hartford Steam Boiler Inspection and Insurance, and Westvaco.
In the documentation provided to all VIP Sales Personnel and Key Account Sales Personnel explaining the Key Account Referral Plus Compensation Program, Motorola expressly reserved its right to change the compensation program at any time. Indeed, the memorandum Motorola provided to all Sales Personnel, including Mr. Pontecorvo, state, in pertinent part:
This program is subject to change or discontinuance at any time. Compensation changes can be made with respect to existing MCSI customers, line residuals and/or future sales and residuals.
Mr. Pontecorvo concedes that Motorola had the right to change or discontinue the Key Account Referral Plus Compensation Program at any time, with or without notice.
Similarly, Motorola's Line Maintenance Compensation Program contained express language indicating that it was subject to change at any time. Specifically, the program stated, in pertinent part:
The U.S. Markets Division (USMD) intends to continue this program, however, USMD has the right to change or discontinue this program at any time. (Attached as Exhibit F to McClain Aff.)
Mr. Pontecorvo testified that he understood Motorola could change or discontinue the Line Maintenance Compensation Program at any time.
In March 1995, Motorola offered Mr. Pontecorvo a position in the Key Account Group, but he rejected the offer because he thought that the salary was too low. Therefore, Mr. Pontecorvo voluntarily chose to remain within the VIP Sales Personnel Group.
4. Business Value Plan Accounts
For clients who did not require all of the services provided through the Key Account program, Motorola offered the Business Value Plan ("BVP"). This plan applied to companies requiring at least 15 cellular phone lines. VIP Sales Personnel also earned straight commissions and residual commissions through the Business Value Plans.
5. Internal Sales
Motorola paid VIP Sales Personnel commissions when they sold equipment and/or services internally. Mr. Pontecorvo concedes that when he sold cellular phones to other Motorola representatives, Motorola compensated him in accordance with the program.
6. Changes Made to Compensation Structure
In January 1997, Motorola exercised its discretion and implemented a new VIP Key Account Referral Compensation plan. Under the new plan, Motorola no longer paid commissions to salesmen for each new cellular phone line they sold, and provided bonus payments only after VIP Sales Personnel reached certain thresholds. For example, if a salesman sold 250 cellular phone lines, the Company paid him $500; if he sold 500 lines, the Company paid him $1,000; at 1000 lines, the company paid him $2,000; and if he sold 2000 he was paid $4,000 (see affidavit of defendant's Director of Finance which references an exhibit attached to motion setting forth these figures as company policy). Motorola also changed the compensation plan for its salesmen with respect to residual commissions, and implemented the following change: The company paid
1. 3 percent residual commission for the first 50 cellular phone lines he sold on all on-going accounts;
2. .35 percent residual commission for cellular phone lines he sold greater than 50, and activated on or before December 31, 1996; and
3. 0 percent residual commission for cellular phone lines greater than 50, and activated after December 31, 1996. See Plan Summary, Exhibit 15 attached as Exhibit E to the McClain Aff.
Mr. Pontecorvo concedes that even after it implemented the 1997 VIP plan, Motorola continued to pay him a 3 percent residual commission for the first 50 cellular phone lines on all of his ongoing accounts. In fact, he concedes that all VIP sales personnel were treated the same with respect to this change in compensation. Mr. Pontecorvo is aware of only one VIP Sales Representative for whom Motorola made an exception, and this exception was only for one of her existing accounts. Otherwise, Mr. Pontecorvo concedes that Motorola subjected all VIP Sales Representatives, including Mr. Pontecorvo, to the changes in the compensation plan.
In May 1999, Motorola once again exercised its discretion and decided to stop paying its sales personnel residual commissions for cellular phone usage. Instead, Motorola offered all VIP Sales Personnel, including Mr. Pontecorvo's base salary at $20,000.
The compensation changes Motorola implemented in January 1997 and May 1999 did not pertain to the Business Value Plan accounts. Mr. Pontecorvo concedes that Motorola continued to compensate him for the cellular phone lines he sold through the BVP accounts.
In sum, Mr. Pontecorvo concedes to the following key facts. Motorola never represented to him, either in writing or verbally, that it would maintain the Key Account payments and residual commissions perpetually, or that his compensation structure would never change. Indeed, Motorola always represented that it reserved the right to alter or discontinue its compensation structure for salesmen, including commissions, at any time. Although Mr. Pontecorvo was disappointed by Motorola's decision to change his compensation structure, he does not challenge Motorola's authority to unilaterally make the changes.
C. Termination of Mr. Pontecorvo's Employment
As a result of the elimination of his entire division, Motorola terminated Mr. Pontecorvo's employment, effective May 26, 2000. Motorola communicated the termination decision to Mr. Pontecorvo in March 2000, but compensated him through May. According to Mr. Pontecorvo, Motorola terminated approximately 150 employees in February, and then terminated him, along with approximately 30 to 40 additional employees, in March.
The plaintiff, as noted, does not dispute the accuracy of any of the references made in the deposition but does add one reference himself in the opposition brief. It is said: "Plaintiff also testified at his deposition that when, on or about May 1, 1999, the defendant implemented a base salary plan, that while his grade level E5, entitled him to base compensation of between $37,200 to $55,800, he was only receiving $20,000." This references the claim made in count four and the plaintiff characterizes the issue as one of "disparate treatment" and whether it is "justified is yet another issue of fact to be decided at trial."
Before discussing the substantive legal issues raised by this case the court must address preliminary matters.
In the September 19, 2003 brief submitted by the plaintiff in opposition to the plaintiff's motion it is said in the conclusion that the motion for summary judgment should be denied "or alternatively a decision should be continued until further discovery can be completed." In fact the same day the opposition brief was filed the plaintiff filed a motion for continuance to complete discovery which was granted September 22, 2003. Argument was held on this motion on November 17, 2003. The court brought this matter up. The transcript indicates that the motion for continuance was granted until November 6th. Counsel for the plaintiff said "So that's not an issue today." He agreed he got the continuance and finally said "So we're here to — on the actual motion for summary judgment."
Also, as it is apparent that a major portion of the defendant's argument, if not the bulk of it, relies on statements made by Mr. Pontecorvo in his deposition, the defendant cites Esposito v. Wethered, 4 Conn. App. 641 (1985), for the proposition that "our courts have held that deposition testimony is insufficient for the purposes of a motion for summary judgment." The court was faced with a similar argument in Mechanics Savings Bank v. Walker, 14 Conn. L. Rptr. 129 (1995), and does not accept it as a valid generally applicable rule in our state. In that case the court said:
However, the defendant does rely on the case of Esposito v. Wethered, 4 Conn. App. 641 (1985), "for the proposition that it is a clear principle of Connecticut procedure that deposition testimony may not be relied upon in support of a motion for summary judgment," also see Balderston v. Shoals Construction, Inc., 9 Conn. L. Rptr. 343 (1993). I don't read Esposito to support such a flat statement of the procedural law. True, as the court said, the primary purpose of such depositions is discovery, Id. p. 645. But that doesn't make a statement made by a party in such a deposition any less an evidentiary admission. It can be used for such purposes at trial, why can't it be used for what it's worth in summary judgment procedure? There's a difference between evidentiary and judicial admissions. Certainly as the Esposito court said such an "admission" in a deposition is not a so-called judicial admission. Thus if the party against whom the deposition is sought to be used in summary judgment procedure submits an affidavit contradicting or explaining away the harmful deposition admission, or other evidence before the court contradicts the deposition admission summary judgment shouldn't be granted, see 4 Conn. App. at page 644. But that's so because there's a material fact in issue not because a party's admission in a deposition has an inferior evidentiary status than any such admissions made in any other context.
It is to be noted that with his opposition to this motion the plaintiff filed no affidavits contradicting or trying to explain the "true" meaning of what he said in his deposition. No other documents, letters, etc., were submitted in opposition. The plaintiff as the court has mentioned has not disputed the accuracy of the plaintiff's references to the deposition and in only one instance, which the court has noted, has the plaintiff added a reference to deposition testimony of Mr. Pontecorvo which the defendant did not include in its summary of that deposition.
The court will now try to address the substantive issues raised. Giving the plaintiff's various claims their most favorable reading, what the plaintiff seems to be saying is that under terms of the understanding between the parties as to wages he was originally told that when he made a sale of equipment he would continue to receive residual or continuing commissions for the duration of the contract period. What Motorola then did was continue to basically change the method of compensation so as to reduce and finally terminate his right to receive the residual commission on sales that he made while the residual commission policy was in effect. In argument on this matter that was the explicit position adopted by plaintiff's counsel. In fact counsel went on to say that, of course, Motorola could change its compensation policy and say that as to any sales made after the policy change there would be no right to receive any residual commissions but the point here is that as to sales made before the policy change it is argued that the plaintiff should receive compensation.
The problems presented by this case are (1) is the plaintiff's position supportable even though he was an at-will employee and (2) even if there is a justifiable basis for the plaintiff's position has there been anything submitted to the court to indicate that the defendant in fact did not pay the plaintiff the residual commissions agreed upon concerning sales made before such residual commissions were terminated by the company unilaterally.
The court could find no Connecticut cases directly on point addressing the first issue.
The court cannot agree with the plaintiff insofar as he argues that the fact that a person is not in an at-will employment situation has no bearing on the right of the employer to change the terms of compensation or even the payment of commissions otherwise claimed to have been earned. On the other hand the mantra of "employment at will" will not protect an employer from past earning claims in certain lack of notice situations as will be discussed.
The general law in this area seems straightforward. In 27 Am.Jur.2d "Employment Relationship" at § 54, page 599 it says:
Under an at-will employment relationship, an employer can alter the terms of compensation, provided (the employer has given notice of the alteration to (the) employee and the employee thereafter continues his (her) employment.
As said in Martin Golden Corral Corporation, 601 So.2d 1316 (Fla.App. 1992).
Although there is no case on point in Florida, there is authority from other jurisdictions that the employer also can modify the original compensation agreement . . . Basic contract principles govern modifications to employment-at-will contracts. The party asserting a modification must prove (1) notice of the change and (2) acceptance of the change.
These same points are noted in an annotation in 69 A.L.R.4th 1135 which reviews sufficiency of notice of modification of compensation of at-will employees who continue to work at the job. There at page 1147 it is said: "Where, however an employee is an at-will employee, a notice by the employer that for the future he (she) will pay less compensation to the employee creates a new contract based upon a sufficient consideration, if the employee continues service thereafter."
In other words the at-will nature of the relationship allows termination at will but implied contractual arrangements as to hours, wages, etc. can arise in such a relationship with ordinary contract principles applying — the employer can change the terms of compensation at any point as long as there is notice of the proposed change and acceptance.
But as the Am.Jur. Section then goes on to point out:
However, even if there is an at-will employment relationship, the employer cannot unilaterally alter the amount of the compensation for work that has already been rendered by the employee.
In other words an at-will contract is "valid and subsisting" until the employee is terminated and: "That an employment contract is terminable at will" means only that the contract "may be terminated at will and without cause . . . It does not mean that an employer can promise to pay an employee a certain wage and then unilaterally decide to pay the employee less for work she has already done." Paniagua v. City of Galveston, Texas, 995 F.2d 1310, 1313 (CA 5, 1993).
This means the at-will nature of the relationship allows termination at will but implied contractual arrangements as to hours, wages, etc. can arise in such a relationship with ordinary contract principles applying — the employer can change the terms of compensation at any point as long as there is notice of the proposed change and acceptance.
All of this applies for claims made for past hours worked which were to be compensated per agreement at a fixed rate.
Commissions present somewhat of a unique problem. They are often used as a mechanism in highly competitive industries to encourage an aggressive sales force. On the other hand when profit margins fall there is pressure on companies to try to reduce their obligation to pay commissions even where they have been earned under a sales contract. There are two interesting cases on this question. In Stinger v. Stewart Stevenson Services, Inc., 830 S.W.2d 715 (Tex.App. 1992) the former employee brought an action in fraud and contract on commissions he claimed had been earned. The court upheld the directed verdict for the defendant company and at page 719 said the following:
Although the (1983) arrangement states in the first paragraph," You will be paid a commission" with a specific formula for computation, the arrangement goes on to state situations where commissions will be reduced or cancelled and ends by stating that the arrangement can be modified "upwards or downwards" at the company's discretion. The arrangement, therefore, by its own terms, did not represent to promise (plaintiff) very much of anything, except that the company promised to pay commissions based on a stated formula unless it determined it did not want to.
But this language was all set forth in the 1983 "arrangement" and clearly applied to the terms of the commissions in that very plan. In any event the court found that the next case it will discuss is well-reasoned and more instructive than Stinger. In Tymshare, Inc. v. Covell, 727 F.2d 1145 (CA D.C., 1984), a former employee, Covell, sued Tymshare, Inc. in contract again basically claiming he was not paid commissions he had earned. Covell was paid on a salary-commission basis. "The exact amount of his compensation was determined with reference to the company's 'Compensation Plan,' under which sales representatives were entitled to commissions on all sales in excess of designated annual sales quotas," id. p. 1148. The plan allowed the company "to hold a portion of each employee's accrued monthly commissions in a reserve account which would be settled at year's end." Id. Business apparently started to go badly, the company adjusted the quotas, and the amount of the plaintiff's commission was reduced accordingly.
The district court granted summary judgment for the plaintiff but the court of appeals reversed saying the interpretation of the agreement between the parties was best determined by a jury and the case was not appropriate for summary judgment.
The court rejected the company's argument on appeal that the company had absolute power to alter the quotas; the "plan" said Tymshare, Inc. may change the quota plan "within its sole discretion." At page 1154 the court said that: "Where what is at issue is the retroactive reduction or elimination of a central compensatory element of the contract — a large part of the quid pro quo that induced one party's assent — it is simply not likely that the parties had in mind a power quite as absolute as (appellant company) suggests. In the present case agreeing to such a provision would require a degree of folly on the part of these sales representatives we are not inclined to posit where another plausible interpretation of the language is available." The court went on to say the "sole discretion" intended was meant to be discretion to determine whether certain factors existed reasonably justifying alteration of the sales quotas. Looking at the company's practice and the language of the compensation plan the court said factors permitting quota alteration would be, for example, an unanticipated volume of business from a customer that was not the result of employee sales efforts or a poor sales year. The court said, however, that the "sole discretion" language could not be reasonably interpreted to confer discretion to change the commissions for any reason whatsoever. Basically, in overturning the district court's granting of summary judgment the court said:
Whether pursued under the rubric of "good faith" or the more traditional rubric (for most contracts) of "implied limitation" the object of our inquiry is whether it was reasonably understood by the parties to this contract that there were at least certain purposes for which the expressly conferred power to adjust quotas could not be employed.
Id. p. 1153.
The court could not find any Connecticut appellate cases exactly on point. But it seems to this court at least that where a company seeks to bar commissions earned under a plan it instituted as an incentive to its sales force it should explicitly state in that plan that commissions earned thereunder can be retroactively reduced or barred at the company's discretion or for certain reasons that are spelled out. Requiring such explicit notice in the plan itself or in a manual distributed to employees is not an unfair or harsh burden — all it involves is the cost of printing a paragraph to that effect in the indicated documents. Certainly it will not do in these situations to avoid the legal questions presented for an employer to blur over the problem by simply relying on the blessings of the at-will doctrine and hammer at the theme that no one at the company told the employee that a compensation plan would not be changed or the terms of the compensation would not be changed.
Perhaps the foregoing goes too far insofar as it sets forth an absolute rule and resolution of this matter should be left to the trier of fact as a matter of contract interpretation. It will have an interesting job — compare the language in the "Key Accounts Referral Plus Program" which employees were made award of: "This program is subject to change or discontinuance at any time. Compensation changes can be made with respect to existing MCSI customers line residuals and/or future sales and residuals." All of this begs the question of retroactivity with regards to commissions. And compare that language to the even more neutral language of the "Line Maintenance Compensation Program" where the materials say, "The U.S. Markets Division (USMD) intends to continue this program, however, USMD has the right to change or discontinue this program at any time." Really? At their sole discretion? See Justice Scalia's opinion Tymshare, Inc. v. Covell, supra.
There is another matter that should be addressed although not explicitly raised. As far as the materials submitted to the court are concerned, it is true that the plaintiff did not submit documentary evidence or affidavits specifying the exact amount of any commissions he claims had been earned and were not paid to him.
But if it is read giving the plaintiff every favorable inference, his deposition, which was under oath and submitted by the defendant, claims there were certain ongoing accounts at Motorola as to which he was entitled to receive commissions under employer programs operative when the contracts were made but did not receive those commissions because of an after-the-fact change in compensation policy. Furthermore the summary judgment motion was premised on a legal discussion of the absolute right of the employer, because of the at-will relationship, to refuse to compensate for commissions whether or not they were "earned" under pre-existing compensation programs. The motion was not based, for example, on a factual argument to the effect that even if the plaintiff's theories of liability were viable he was not entitled to damages because he could not establish that Motorola had not paid him all he was entitled to under compensation programs in effect when he effectuated the contracts with customers. Under these circumstances it would not be fair pursuant to this motion to fault the plaintiff for not presenting affidavits or documents to establish the amount of his alleged loss — the motion never joined issue on that question.
The court denies the motion for summary judgment and will not render what would in effect be an advisory opinion on the alternate claim in Count Four regarding the defendant's published salary range and the plaintiff's apparent assertion of his entitlement to it.
Corradino, Judge.