Unambiguous contract means lower commission for employee

July 1, 2015

The 7th Circuit Court of Appeals tossed a jury’s award of $1.5 million, finding the terms of the employee’s incentive plan were unambiguous and the trial was unnecessary.

David Lawson sued his employer for breach of contract and violation of Indiana’s wage claim statute after his potential commission of $1.8 million was reduced to $54,000. Lawson was a services sales executive and sold computer maintenance and support service for StorageTek Inc. While he was working on a deal to add JPMorgan Chase & Co as a new customer, StorageTek was acquired by Sun Microsystems Inc.

A federal jury found for Lawson but the 7th Circuit reversed the judgment of the U.S. District Court for the Southern District of Indiana and remanded with instructions to enter judgment for Sun. The case is David Lawson v. Sun Microsystems, Inc., 13-1502 and 13-1503.

 Sun claimed Lawson’s sale was finalized and invoiced after the acquisition was complete and, therefore, was subject to the conditions of the company’s incentive plan.

Notably, Sun viewed the JPMorgan Chase deal as renewal business because the financial institution was already a customer of its services. Therefore the deal was subject to a lower commission than if it had been new business. Also, Sun amended Lawson’s incentive plan in September 2005, stating the current incentive plan for StorageTek would end in December 2005.

The JPMorgan Chase sale was not finalized and invoiced until March 2006.

Lawson argued provisions in the incentive plan were in conflict which created an internal ambiguity. The District Court agreed and allowed Lawson to present extrinsic evidence to a jury that Sun intended the compensation plan to continue beyond December 2005.

The 7th Circuit held contractual phrases must be read as a whole. Pointing to Allen Cnty. Pub. Library, 997 N.E.2d at 52 and Four Seasons Mfg. v. 1001 Coliseum, LLC, 870 N.E.2d 494, 501 (Ind. Ct. App. 2007), the appellate panel noted Indiana courts tend to read contracts holistically so the provisions harmonize rather than oppose each other.

“Read together, these provisions unambiguously establish that to qualify for commission credit under StorageTek’s 2005 plan, a sale must meet all eligibility requirements by the end of the year, that is, by December 25, 2005,” Diane Sykes wrote for the court. “The JPMorgan Chase sale plainly did not qualify.”




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