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KM&M’s Clients Prevail on Their Motion to Dismiss an Employee’s Multimillion Dollar Lawsuit for Commissions and Bonuses.

July 8, 2009

On July 1, 2009, the New York State Supreme Court, Nassau County, granted a motion to dismiss filed by KM&M’s clients, a national provider of cable, internet and telephone services and one of its management employees, in a multimillion dollar action filed by a sales executive regarding his alleged entitlement to bonus and commission payments.

The case arose when the company removed a major nationwide account from the plaintiff’s responsibility.  While the company asserted that the removal of this account was in accordance with the terms of the company’s sales compensation plan, the employee objected, asserting that he was entitled to millions of dollars in prospective commissions and bonuses based on his past efforts in originating and developing this former account. 

In September 2008, the employee filed a lawsuit against the defendants in New York State Court, alleging that he was entitled to these commissions and bonuses under theories of breach of contract, breach of the implied covenant of good faith and fair dealing, unjust enrichment, fraud and fraudulent misrepresentation, and tortious interference with contractual relations (asserted only against the individual defendant).  The employee also sought a declaratory judgment against the defendants concerning the payment of his commissions and bonuses. 

KM&M’s clients moved to dismiss all of the employee’s claims, and the Court granted this motion in its entirety, and dismissed the employee’s claims with prejudice.  The Court ruled, among other things, that:

(a)  the employee failed to state a cause of action for breach of contract because the very contract upon which he relied (the sales compensation plan) authorized the defendants’ actions;

(b)  the employee’s claim for breach of the implied covenant of good faith and fair dealing was redundant of his breach of contract claim, and could not be maintained as an independent cause of action;

(c)  the implied covenant of good faith and fair dealing is inapplicable to all aspects of an at-will employee’s employment relationship;

(d)  the employee could not recover for commissions and bonuses under a theory of unjust enrichment because this cause of action was duplicative of his breach of contract claim, and the existence of an agreement such as the sales compensation plan barred the employee from seeking the same recovery through an unjust enrichment theory;

(e)  the employee failed to plead his claims of fraud and fraudulent misrepresentation with the requisite specificity, and the employee failed to seek relief for a breach of a duty that was independent of the company’s obligations under the sales compensation plan;

(f)  the employee was not entitled to a declaratory judgment because he had other adequate remedies at law; and

(g)  the employee failed to plead the required elements of tortious interference with contractual relations against the individual defendant. 

This decision is an important one for employers that offer incentive compensation to employees because it demonstrates the importance of establishing a compensation plan that: (a) clearly defines the terms of the employees’ rights to obtain commissions and bonuses; (b) preserves the employer’s right to modify and suspend staffing arrangements and customer assignments to serve the company’s and customers’ best interests; and (c) protects the employer against disgruntled employees’ unmeritorious claims for commissions and bonuses.  If you have any questions regarding this decision, or your current commission and bonus plan, please do not hesitate to contact any of our attorneys.