McGough v. Broadwing Communications, Inc.

Citations: 177 F. Supp. 2d 289; 2001 U.S. Dist. LEXIS 21249; 2001 WL 1640008Docket: 00-6206 (JEI)

Court: District Court, D. New Jersey; December 21, 2001; Federal District Court

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Gerald N. McGough and Matthew J. Haviland, former employees of Broadwing Communications, Inc., filed a lawsuit seeking unpaid commissions and bonuses. The Complaint includes claims for breach of contract, promissory estoppel, unjust enrichment, violations of the Pennsylvania Wage Payment and Collection Law (WPCL), and the Pennsylvania Commissioned Sales Representatives Act (CSRA), along with a request for an accounting of due commissions. Broadwing filed a Motion to Dismiss specific counts of the Complaint under Fed. R. Civ. P. 12(b)(6), which the court has jurisdiction over pursuant to 28 U.S.C. 1332. 

Plaintiffs were employed in the retail sales division after Broadwing acquired their previous employer, IXC Communications, in November 1999. They were compensated with a base salary plus commissions, with Haviland entitled to override commissions on sales within his branch and McGough on sales across his region. Following the acquisition, Broadwing introduced a Sales Compensation Plan set to take effect in April 2000, which outlined commission calculations based on the third month of customer billing. However, Plaintiffs allege that they were informed during a company summit that these plans were not being followed, and that changes were made to commission calculations without formal notification. Additionally, they claim to have been promised management bonuses, with supporting correspondence attached to their Complaint.

Mathew Haviland is identified as a crucial member of the NewCo team, eligible for special compensation tied to his continued employment on specific dates—May 19, 2000, and November 17, 2000—each promising $6,468.80. Similarly, Plaintiff McGough was promised two bonuses of $10,143.00 contingent on his active employment on the same dates. Both plaintiffs received the first half of their management bonuses by May 19, 2000, but were terminated on October 30, 2000, after Broadwing acquired IXC Communications. They were assured they would receive their salaries and commissions until October 31, 2000, but were informed that the second half of their bonuses would not be paid. Plaintiffs subsequently filed a lawsuit to recover unpaid commissions and bonuses, asserting various claims: Counts I to III for breach of contract, promissory estoppel, and unjust enrichment; Counts IV and V under the Pennsylvania Wage Payment and Collection Law (WPCL) and the Pennsylvania Commissioned Sales Representatives Act (CSRA); and Count VI for an itemized accounting of unpaid commissions. The defendant's motion to dismiss focuses on Counts IV through VI, which hinge on the sufficiency of the allegations regarding a breach of contractual obligations under the WPCL. The WPCL serves as a mechanism for employees to recover unpaid wages due to employer breaches without creating new substantive rights. The court's evaluation will center on whether the plaintiffs have sufficiently alleged a breach of contract regarding their compensation for services rendered prior to termination.

Defendants argue that Plaintiffs' claim for override commissions is solely based on the original Compensation Plan established by Broadwing after acquiring IXC Communications. This Plan includes a disclaimer stating it is not a contract and does not confer legal rights to compensation or alter the at-will employment status of managers. Although Plaintiffs are at-will employees, this status does not exempt Broadwing from compensating them for services rendered before their termination. At-will employment allows either party to terminate the relationship without cause but does not negate the employer's obligation to pay for work performed. The Compensation Plan's disclaimer allows Broadwing to modify future compensation but does not retroactively alter compensation for past services. Additionally, Plaintiffs assert the existence of a separate oral agreement promising a base salary plus commission for their work. A contract can be express, formed through verbal or written declarations, or implied-in-fact, based on the parties' conduct and circumstances. A promise to pay for valuable services rendered is generally implied when such services are provided with the recipient's knowledge and without dissent.

A promise to pay for services can be implied if the service provider has a reasonable expectation of compensation. In this case, a binding contractual relationship is suggested between the Plaintiffs and Defendant concerning the payment for services rendered before their termination. The Plaintiffs were employed as sales managers, receiving a salary and commissions, and the Defendant actively utilized their services while assuring them of compensation. Given the established employment relationship and prior compensation, it was reasonable for the Plaintiffs to expect payment for work performed before their discharge. The Court finds that the Plaintiffs adequately claimed an implied contract for compensation under the Wage Payment and Collection Law (WPCL) and that their pleadings are sufficient to withstand a motion to dismiss for unpaid wages and commissions.

However, the situation regarding management bonuses is different. During Broadwing's acquisition of IXC Communications, the Plaintiffs were promised management bonuses, as outlined in a letter sent to Plaintiff Haviland, which specified conditions for receiving these bonuses. Both Haviland and McGough received their first bonuses but were terminated before the second bonus payment date. The Court notes that, generally, parties to a contract can impose conditions on their obligations, and these conditions must be fulfilled for a binding agreement to exist unless waived or excused. As such, the Plaintiffs' entitlement to the second management bonus hinges on the fulfillment of that condition.

The promised bonuses for Plaintiffs were contingent upon their status as "active employees" on specific dates, which they do not claim was met. Their employment status ended on October 31, 2000, prior to the date they would have been eligible for the second bonus. The complaint fails to allege that the condition of active employment was waived or modified, and it does not assert that Broadwing had a duty to retain them as employees until the bonus eligibility date. Plaintiffs argue that their termination was timed to deprive them of these bonuses, yet they do not specifically allege bad faith or provide supporting facts. Consequently, the court finds that Plaintiffs have not sufficiently established a contractual right to the second management bonus or to the quarterly bonuses, which required active employee status at the time of disbursement. The original Compensation Plan states bonuses are only available to active employees, which Plaintiffs do not claim to have been at the relevant time. Additionally, their claims regarding stock options are vague and lack sufficient detail to establish a contractual entitlement. They do not specify terms for the stock options or assert that they were not tendered, nor do they demonstrate their performance warranted such options. A letter included in the complaint regarding McGough mentions stock options from a prior employment offer, but it predates Broadwing's acquisition of IXC and does not substantiate his claim. Overall, Plaintiffs' allegations do not support a viable cause of action for the recovery of bonuses or stock options under the WPCL.

The complaint does not assert that McGough did not receive stock options but notes that he was promised an additional $2,000 in stock options based on performance, without detailing the performance criteria. Although McGough was the top District Sales Manager, he did not receive the remaining options. The discretionary language in the offer letter is deemed insufficient to establish a binding legal entitlement, leading to the conclusion that the Plaintiff has failed to state a valid claim under the Wage Payment and Collection Law (WPCL) for these options.

Count V alleges a violation of the Pennsylvania Commissioned Sales Representatives Act (CSRA), which governs contracts between sales representatives and principals and allows for recovery of unpaid commissions. However, the CSRA excludes those classified as employees of the principal, and since both parties acknowledge an employer-employee relationship, the protections of the CSRA do not apply. Consequently, Count V will be dismissed.

In Count VI, Plaintiffs request an accounting of outstanding commission payments, claiming that necessary information is exclusively possessed by the Defendant. The complaint does not clarify whether this is for an equitable accounting or an accounting at law. The Defendant argues that the Plaintiffs have not adequately alleged elements for either claim. Plaintiffs concede they have not sufficiently claimed an equitable accounting under Pennsylvania law, as an adequate remedy exists for breach of contract. Nevertheless, they argue that they have met the requirements for an accounting at law under Pennsylvania Rule of Civil Procedure 1021(a), which allows for the demand of various types of relief, including an accounting, without specifying conditions for seeking it.

Defendant Broadwing's motion to dismiss Plaintiffs' accounting claim relies on the Haft case, which outlines two prerequisites for establishing a right to an accounting in an assumpsit action: (1) a valid contract between the parties where the defendant either received funds in a fiduciary capacity or failed to account for funds, thereby leaving the plaintiff unable to determine the exact amount due, and (2) a breach of the contractual duty by the defendant. Broadwing argues that Plaintiffs fail to meet the first criterion, noting that the complaint does not assert any payment to the defendant or fiduciary obligations. However, the defendant overlooks the second criterion, which allows for a viable claim if the breach leaves the plaintiff unable to ascertain the amount owed. Plaintiffs contend that their claim for accounting is inherently linked to their breach of contract claim, asserting that the defendant's failure to account prevents them from calculating the outstanding commissions. The court finds that Plaintiffs' allegations—that Broadwing breached its duty to provide wages and commissions and holds the necessary documentation to determine the amounts owed—are sufficient under Pennsylvania law to deny the motion to dismiss the accounting claim.

Plaintiffs' claim under the Pennsylvania Wage Payment and Collection Law (WPCL) will be partially dismissed, while the motion to dismiss their claim under the Pennsylvania Commissioned Sales Representatives Act will be fully granted. However, the motion to dismiss Plaintiffs' claim for an accounting of unpaid sales commissions will be denied. The Court will issue a corresponding order.

The complaint seeks recovery for management bonuses, quarterly performance-based bonuses, and stock option rewards allegedly owed upon termination. Under the WPCL, wages earned by an employee and wrongfully withheld must be paid upon termination, defined broadly to include all forms of compensation. If wages remain unpaid for 30 days past payday, employees may claim liquidated damages equal to 25% of the total unpaid wages, provided no good faith dispute exists.

Plaintiffs' WPCL claim is closely tied to their breach of contract claim, which remains unchallenged by the Defendant. To challenge the presumption of at-will employment under Pennsylvania law, a plaintiff must demonstrate additional consideration, a set duration of employment, or a just-cause termination agreement. Documents like the Compensation Plan can alter at-will status only if a reasonable person would interpret them as such. Disclaimers denying intent to create a contract can maintain the at-will presumption. Defendants do not argue that an express contract is necessary for a valid WPCL claim, which only requires a binding legal duty from the employer to provide the compensation sought.

Under Pennsylvania law, a contract implied-in-fact holds the same legal weight as an express contract, differing only in formation. The significance of the Compensation Plan and Broadwing's attempts to alter Plaintiffs' compensation are crucial for determining their entitlement to compensation for services rendered before termination. The Court does not need to address this issue for the current motion. Plaintiffs' complaint lacks essential details to clarify their allegations, particularly regarding the "Third Quarter." In response to a motion to dismiss, Plaintiffs state that their claim serves as an alternative in case the Defendant disputes the employer/employee relationship, which Broadwing claims is not at issue. Even if Broadwing were considered a "principal," the Plaintiffs do not qualify as employees under the CSRA. Additionally, Defendant argues that Plaintiffs seek information obtainable during discovery, but the Court finds that the potential for gathering this information does not justify dismissing the claim at this early stage. Should all requested information be provided during discovery, Defendants may later file for summary judgment on the basis that Plaintiffs' claim is no longer valid.