Avoid Ambiguity in Compensation Agreements

Several recent cases involving the Massachusetts Wage Act highlight the importance to employers of using clear, written and consistently applied compensation plans. As the cases make clear, the failure to do so can have serious financial repercussions. In a 2007 decision, Okerman v. VA Software Corp., the Appeals Court held that the Wage Act applies to the payment of commissions to professionals earning a “healthy salary,” and was not limited to employees compensated solely through commissions. The court allowed a claim that periodic, retroactive changes to an employee’s commission plan violated the Wage Act. This decision reversed the position taken by several lower courts and confirmed applicability of the Wage Act to all employees.

In another recent decision, Lampert v. CTC Communications Corp., an employee received a judgment for unpaid commissions from a large sale he had completed. The employer argued that, given the size of the sale and the negotiated volume pricing that Family Law was required for the sale, a “Special Pricing” section of the employee’s sales commission plan was applicable to the sale. While the employee argued that the provision was ambiguous, the employer argued that he should have inquired to determine the term’s meaning.

Rejecting the employer’s argument, the court noted that any ambiguous language in a written contract must be construed against the party that wrote the contract and entered summary judgment for the employee. Since the Wage Act also provides for a mandatory award of treble damages and attorney’s fees to an employee who prevails in a claim for unpaid wages, the economic cost to the defendant for its poorly drafted commission plan was likely quite significant.

These cases illustrate the serious consequences a poorly drafted compensation agreement can have on a company’s bottom line. Employers must use vigilance to ensure that their employment contracts are clear and unambiguous. Feel free to contact Brad Compston with any questions about compensation agreements.

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