New England Biz Law Update
An insurance salesman could sue his former employer under the Massachusetts Wage Act for failing to pay him “discretionary” commissions he claimed he earned before he was given notice of his termination, a U.S. District Court judge in Boston has determined.
The defendant employer, Prudential Insurance Co., argued that the Wage Act did not apply because the commission plan was discretionary and thus the commissions were neither “definitely determined” nor “due and payable.”
But Judge Douglas P. Woodlock disagreed.
“While Prudential exercises substantial discretion in the administration of the commission plan, the commissions are not themselves discretionary,” Woodlock wrote in denying the employer’s motion to dismiss.
“The plan does not afford Prudential carte blanche to withhold or modify commission payments for any reason. It simply affords discretion over factual determinations, calculations and eligibility,” he added. “To interpret the discretion under the plan as broadly as Prudential would have it would render the plan meaningless.”
The judge also ruled, however, that the employee’s Title VII age discrimination claim accrued in July 2009, when he was first notified of his termination and told not to return to work, as opposed to the date of his effective termination date, which was ultimately extended several months to accommodate a short-term disability leave.
“[The employee] does not allege that Prudential offered him the possibility of another position at the company or that he might be reinstated at some future time,” Woodlock said. “The July 24, 2009 letter from Prudential terminating [the employee] was absolute, without offering the possibility of reinstatement or transfer to another position.”
The 24-page decision is McAleer v. Prudential Insurance Company of America, et al.
Lack of discretion
Patricia A. Washienko, who argued on behalf of the employee, called the ruling “very significant” in light of the number of Massachusetts employers who have put language in their commission and bonus plans making such awards discretionary. She said that came about after an earlier ruling by the state’s Supreme Judicial Court suggested that employers are not required to pay bonuses to employees who are fired or quit.
“But what Judge Woodlock implied here is that commissions are different,” said Washienko, a lawyer at Freiberger & Washienko in Boston. “Commissions really aren’t discretionary in the same way bonuses are. They’re discretionary perhaps with regard to the administration of the plan, but are not themselves discretionary.”
Thus, she said, employees and their counsel should not hesitate to pursue a Wage Act claim for unpaid commissions even if a plan includes language stating that the award of commissions is discretionary.
Robert R. Berluti of Boston, who represents employees in Wage Act claims, agreed.
“An employer cannot offer a commission plan but then retain unfettered discretion in whether or not to apply it, which is what Prudential argued,” said Berluti, who practices at Berluti, McLaughlin & Kutchin.
A ruling the other way would render commission plans “illusory,” he said.
Meanwhile, Washienko — who did not represent the employee at the time of filing — said she was not surprised by the statute of limitations issue.
“It’s disappointing, but the judge made a factual determination,” she said, adding that, in light of the ruling, “there’s no question that employee counsel needs to take a very conservative approach and lean toward reading [even some] notice as unequivocal so that they meet the statute of limitations.”
Jennifer B. Furey, a Boston attorney who represents employers in Wage Act cases, said the decision “breathes some life” into time-barred age discrimination cases by relying on Prudential’s alleged wrongful termination to question its discretion to determine eligibility under its commission plan.
Furey called attention to language in the decision stating that if the employee’s termination was due to unlawful discrimination and not poor performance, Prudential would not be able to avoid Wage Act liability merely by asserting that it had the discretion not to award commissions.
“[E]ven commission plans which allow the employer to withhold commissions after a termination for cause can be deemed non-discretionary and therefore subject to the Wage Act if the employee has challenged the termination,” the Cooley, Manion, Jones attorney said.
Furey advised employers to be cautious in withholding commissions after firing an employee for cause, particularly in light of Wage Act remedies such as treble damages and attorneys’ fees.
Amy Cashore Mariani of Fitzhugh & Mariani in Boston represented the employer. She declined to comment.
Withheld commissions
Plaintiff Christopher McAleer was defendant Prudential Insurance Co.’s New England Division sales manager, responsible for territory ranging from Maine to West Virginia. In 2005, he was demoted to regional sales manager responsible only for New Hampshire, Maine and Massachusetts.
McAleer, 59 at the time of his demotion, was replaced by a 40-year-old, Eric Fauth.
Following the demotion, McAleer’s sales figures apparently started to drop and he began receiving negative performance evaluations. According to McAleer, his reduced figures stemmed from Prudential’s delay in approving competitive annuity products for sale in Massachusetts, which comprised about 85 percent of the company’s New England business.
The products had apparently been approved for sale in the rest of the country months earlier.
When McAleer approached Fauth and Fauth’s supervisor to request that his sales targets be adjusted downward to reflect the months with no competitive products to sell, they refused. Then, on July 24, 2009, they fired McAleer by letter for failure to meet evaluation expectations and sales goals.
That same day, McAleer was ordered to turn in his ID badge, security key card and computer equipment, and he never returned to the office.
The plaintiff subsequently requested and received 12 weeks of short-term disability leave. That, plus his unused vacation time, extended his effective termination date to Dec. 21, 2009. Accordingly, Prudential issued him a new termination letter that superceded the July 24 letter.
Though Prudential apparently continued to pay McAleer his base salary until his effective termination date, it stopped paying his commissions on his last day in the office.
McAleer also claimed he was replaced by two younger employees and that, before he was fired, Fauth and other supervisors consistently made ageist comments toward him, such as: “You’re too old for this” and “This is a young man’s job.”
On Aug. 31, 2010, McAleer filed claims with the Massachusetts Commission Against Discrimination and the Equal Employment Opportunity Commission alleging age discrimination.
On May 9, 2012, after the EEOC issued a right-to-sue letter, he filed a Title VII claim in U.S. District Court along with a Wage Act claim stemming from the unpaid commissions.
Prudential moved to dismiss the Title VII claim on statute-of-limitations grounds and moved to dismiss the Wage Act claim on grounds that the commissions were discretionary.
‘Definitely determined’
Addressing the commission issue, Woodlock rejected Prudential’s argument that it had complete discretion to determine whether McAleer was eligible to receive commissions as an active employee in good standing.
First, Woodlock found that Prudential may have had discretion in the administration of its commission plan, meaning that its factual determinations, calculations and eligibility were discretionary.
But the commissions themselves were not discretionary, the judge determined.
While Woodlock conceded that Prudential arguably had the discretion to adjust commissions to account for the time McAleer was out on disability, he also noted that it specifically provided that other incentive payments that might become due during a leave of absence would be paid as earned.
“[S]o Prudential does not have discretion to withhold commissions earned before McAleer began his disability leave, but that became due during his leave,” the judge stated. “Since the commissions at issue are alleged to have been earned before the period of disability, the retention of discretion on the basis of a later disability does not prevent the commissions in this case from being definitely determined,” he said.
Woodlock was similarly unmoved by Prudential’s argument that it had no obligations to pay commissions to a “non-active” employee, as it categorized McAleer following his last day in the office.
“[E]ven if McAleer was not an active employee between July 24, 2009 and [Dec.] 21, 2009, Prudential has not provided any justification to find that this precludes commissions from becoming due and payable if he earned them during the period of his indisputably active employment before July 24, 2009,” the judge said. “Therefore, I cannot find, as a matter of law, that McAleer’s Wage Act allegations fail to state a claim.”
However, the judge did find the Title VII claim time-barred, rejecting McAleer’s argument that the July 24, 2009, termination letter was not unequivocal and that his claim actually accrued on Nov. 4, 2009, the date of the superceding letter that extended his effective termination date. Since he filed his claim within 300 days of the Nov. 4 letter, McAleer asserted, his claim was timely under Massachusetts law.
“Prudential notified McAleer of his termination on July 24, 2009,” Woodlock concluded. “The fact that the final consequences of that decision came later does not change when McAleer learned of the decision. Nor does a confirmatory, superceding letter somehow wipe away more than three months of McAleer’s knowledge that Prudential had fired him.”
