Court Rejects Claims for Unpaid Commissions When Details Were Never Agreed

Last month, the Montgomery County Court of Appeals affirmed an employer’s summary judgment on a claim for unpaid sales commissions.  Brown v. Fukuvi USA Inc., 2022-Ohio-1608.  The plaintiff alleged that he had been verbally promised sales commissions before accepting the job in 2006.  His offer letter – which he signed -- said that a commission structure would be discussed later,  and it was.  However, they could never come to an agreement on a salary and commission structure.  Instead, the employer kept his salary in place and eventually raised it several times before he finally sued in 2019.  The courts found that there was never a meeting of the minds or agreement on the details of a commission structure and, therefore, the employer was not obligated to pay any commissions. 

To be enforceable, contracts must be definite and certain.  An agreement to agree is only enforceable if it is sufficiently definite to be enforced. “When the terms of a contract are not sufficiently definite, the contract is unenforceable.  . . . ‘The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy.’ ””  The plaintiff’s offer letter offered a salary until 2007 and then a reduced salary with a commission – the details of which were to be discussed.  The details were never mutually agreed to and his salary remained unchanged.   “[N]o specific amount of commission or bonus was outlined. Furthermore, details were to be discussed at some future date, with no indication of what those details would be.”

The plaintiff

contends that he was told when he signed the Offer Letter that “his commission structure would operate in the same manner as the prior sale representative, which was a percentage on sales over an initial threshold or goal.”  . . . However, taking this statement at face value, it was made by a [HR] person who lacked authority to authorize payment of commissions; it was also inconsistent with the letter, which said that details would be discussed later. When “later” came, [the company president] elected not to pay commissions due to the severe financial position of the company, and this was communicated to [him]. At that point, if [he] were dissatisfied with the situation, he could have left the company. Instead, he chose to stay. Notably, his salary was not decreased to the considerably lower level mentioned in the Offer Letter.

“Here, the parties may have envisioned a commission and bonus structure, but the details were left to future discussion. Consequently, there was no enforceable promise.”

The court refused to find enforceable details from a commission policy document which the plaintiff had found in his predecessor’s files and which he claims had been referenced during his employment discussions.  The court refused to incorporate them into the offer letter without more evidence.  There was no evidence that the company had provided the policy to the plaintiff during their negotiations or were part of or intended to be part of his offer letter.  The document did not even indicate who prepared it.

The Court also rejected his claims for promissory estoppel, negligent and fraudulent misrepresentations and unjust enrichment on the grounds that they were time barred by the then six-year (and now four-year) statute of limitations.  It rejected his argument that the failure to pay commissions constituted a continuing violation because (1) the Supreme Court of Ohio had taken the position that courts are reluctant to apply this doctrine outside the civil rights context; (2) “continuing violations are distinguished from ‘continuing effects of prior violations’; in this context, ‘ “ ‘ “[a] continuing violation is occasioned by continual unlawful acts, not continual ill effects from an original violation” ’ ” ’ ”; and (3) the lack of authority in Ohio extending this doctrine to breach of contract cases.

The  Court also rejected his equitable estoppel claim because none of his allegations were sufficient to show that the company prevented him from filing suit earlier.   Indeed, a person of reasonable intelligence would have been on notice years earlier of his need to file suit. 

Finally, the plaintiff could not show that he had not been paid his wages under Ohio’s prompt payment act because there was no underlying obligation to pay him commissions.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

Sixth Circuit Finds Unpaid Wage Suit Was Really a Request for IRS Refund

Many states like Ohio have their own wage payment statutes which require employers to pay employees all of their wages by a particular date unless the employee has authorized certain deductions or unless deductions are required by law (such as payroll taxes). When employees are not paid (at all or on time), they not only sue for breach of contract, but also for violation of the wage payment statute.  However, last month, the Sixth Circuit found one such lawsuit for unpaid wages was really a request for an IRS refund because the employer had purportedly deducted not only the employee’s share of payroll taxes from her wages, but also its share of the payroll taxes.   Berera v. Mesa Medical Group, PLLC., No. 14-5054 (6^th Cir. 2-19-15).  According to the Sixth Circuit, the plaintiff’s only remedy for these improper payroll deductions was to seek a refund from the IRS instead of suing her employer under the state wage payment statute for wrongfully deducting amounts from her wages.  Therefore, it dismissed her suit for unpaid wages and directed her to seek repayment only from the IRS.

According to the Court’s opinion, the plaintiff discovered after her employment ended that her W-2 tax form did not accurately reflect the wages she had earned.  A few months later, she filed a class action in state court and alleged under the state wage payment law that that the employer had forced her and her co-workers to pay the employer’s share of payroll taxes and caused them to receive less money than they had earned as wages. After learning that the basis of the lawsuit concerned wrongfully withheld payroll taxes, the employer removed the case to federal court and moved to dismiss.  The trial court found that the allegations actually stated a claim for a tax refund, even if the employer failed to remit the wrongfully withheld payroll taxes to the IRS, because the amounts were deducted as a tax. The Sixth Circuit affirmed.

Section 7422(a) of the Internal Revenue Code governs tax-refund lawsuits. It provides:   

No suit or proceeding shall be maintained in any court for the recovery of any internal revenue tax alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, or of any sum alleged to have been excessive or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the [IRS], according to the provisions of law in that regard, and the regulations of the [IRS] established in pursuance thereof.

26 U.S.C. § 7422(a).

The exhaustion-of-remedies requirement in § 7422(a) is mandatory. Under § 7422(a), a taxpayer is barred from bringing an action in federal court for a refund of any internal revenue tax or sum erroneously, illegally, or wrongfully assessed “until a claim for refund . . . has been duly filed with the [IRS].”

Both the Third and Seventh Circuits have held that employees cannot sue their employers for wrongfully withheld payroll taxes, but must instead, seek a refund from the IRS. Those courts concluded that the federal tax laws completely pre-empted any inconsistent state law remedy.  The Sixth Circuit declined to find complete pre-emption, but agreed that the plaintiff must exhaust her administrative remedies before pursuing litigation.  

The Court rejected the plaintiff’s argument that the IRS would not be able to provide her with a remedy if the employer had failed to remit the wrongfully withheld payroll taxes.  Instead, the Court agreed with the other Circuits that if the employer had failed to remit the wrongfully withheld taxes to the IRS, the IRS was capable of collecting it.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

 

Ohio Court of Appeals: Employer Not Entitled to Self-Help By Keeping Employee’s Pay Check When He Removed Information from the Company’s Laptop.

Last month, the Ohio Court of Appeals for Richland County affirmed a trial court judgment which held that an resigning employee was entitled to his salary and final paycheck which his former employer withheld when it discovered that he had deleted information from the employer’s laptop. Bush v. Signals Power and Grounding Specialists, Inc., 2009-Ohio-5095 (9/25/09). However, the court remanded the case in order for the trial court to determine whether the employee should be liable for converting the employer’s property by wiping clean the laptop’s hard drive.

According to the court’s opinion, the plaintiff was employed to train his co-workers and to design and make presentations about the defendant’s business. In doing so, he developed a library of research which he stored on the laptop issued to him by the employer. When he decided to resign, he removed and/or wiped clean the hard drive of the laptop, erased the internet history and changed his password before returning it. Upon discovering that the information was missing, the employer emailed the plaintiff complaining about these actions and stating that he would not receive his final paycheck until this was all straightened out.

The employee then sued for his unpaid wages, unpaid vacation pay and unreimbursed employment expenses. The employer brought a counter-claim for conversion. The employee was ultimately awarded over $16,000 plus interest by the trial court, which dismissed the employer’s conversion counterclaim. The employer appealed.

Conversion consists essentially of retaining another’s property after its return has been requested. The trial court concluded that the employer could not prevail in this case because it had never demanded the return of its property. The employer argued both that it was not required to demand the return of its property under the circumstances and that, in any event, it had done so. The court of appeals agreed that the employer’s demand was a necessary element of the conversion claim, but that its email complaining about the deletion of the information and threatening to withhold the final paycheck until the matter was resolved could arguably constitute a demand for the return of its property under the circumstances. Therefore, the employer’s counterclaim was remanded back to the trial court to resolve on the merits.

The court of appeals also affirmed the verdict in favor of the employee’s wage claim. The employer argued that it was entitled to retain the employee’s wages because he had been a “faithless servant” by deleting/keeping the information library, etc. However, the court distinguished this situation from where an employee embezzles from his employer over time and the employer recoups his unpaid wages earned during the period of criminal faithlessness in order to minimize the amount of the theft. In this situation, the employee abruptly deleted the information in the minutes before he resigned and it was not accomplished over a lengthy period of time. Thus, retaining the wages he earned over the prior month was disproportionate to an action which took only a few minutes.

Insomniacs can read the full decision at http://www.sconet.state.oh.us/rod/docs/pdf/5/2009/2009-ohio-5095.pdf.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.