International Business Machines Corp. v. Gary Joseph Khoury , 177 A.3d 724 ( 2017 )

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THE SUPREME COURT OF NEW HAMPSHIRE
___________________________
Rockingham
No. 2016-0258
INTERNATIONAL BUSINESS MACHINES CORPORATION
v.
GARY JOSEPH KHOURY
Argued: March 30, 2017
Opinion Issued: December 21, 2017
Jackson Lewis P.C., of Portsmouth (Martha Van Oot on the brief and
orally), for the appellant.
Honig & Barnes LLP, of Haverhill, Massachusetts (Robyn Frye Honig and
Timothy H. Barnes on the brief, and Ms. Honig orally), for the appellee.
DALIANIS, C.J. The appellant, International Business Machines
Corporation (IBM), appeals an order of the Superior Court (Schulman, J.)
upholding a wage claim decision issued by the New Hampshire Department of
Labor (DOL) in favor of the appellee, Gary Joseph Khoury. We affirm.
Before addressing the merits of this appeal, we note that we are
dismayed by the tone of the dissent. The dissent impugns our motives, stating
that we have have “rewrit[ten] the contract to strike a better deal” for Khoury
“than he made for himself” because of our “paternalistic instinct,” which, the
dissent states, “contravenes the proper bounds of judicial authority.” It is
unfortunate that our dissenting colleague views our contract interpretation as
result-oriented merely because he disagrees with it.
I
The following facts were found by the DOL hearing officer, are
established in the record, or are otherwise not in dispute. In January 2013,
Khoury began working for IBM as a sales representative in the federal business
unit, and remains a current employee of IBM. Khoury earns both a base salary
and commissions.
As part of his work, Khoury sells IBM’s products to the federal
government. At the DOL hearing, Khoury explained that IBM occasionally sells
software to a certain “business partner,” who, in turn, has the “rights, so to
speak, to the sales that the sales teams were transacting with the” federal
government. He further explained that IBM does not profit from the
distribution of its products to the government by this business partner, but
IBM assists in the subsequent deployment process.
Khoury testified that, prior to July 2014, IBM paid its sales
representatives commissions based solely upon revenue-generating sales.
According to Khoury, under this arrangement, sales representatives lacked an
incentive to promote the deployment of IBM products that had previously been
sold to the intermediary business partner, and a number of sales
representatives had quit and found other jobs within IBM. In July 2014, IBM
rolled out a new pilot program that allowed sales representatives to earn
commissions on both the sale and deployment of IBM’s products. Under this
program, sales representatives would receive a “primary” commission for
reaching a revenue or sales quota and a “secondary” commission for reaching a
deployment quota. Khoury testified that, approximately every six months, IBM
sent each sales representative an individualized Incentive Plan Letter (IPL)
defining the method by which the sales representative’s commissions would be
calculated for sales and new deployments.
In mid-July 2014, IBM presented Khoury with an IPL for the period of
July 1, 2014, to December 31, 2014. Pursuant to the terms of the IPL, Khoury
would receive the “secondary” commission at issue in this case after meeting a
quota of $571,000 for certain specified signings. The IPL contained several
prominent disclaimers, however:
Right to Modify or Cancel: The [IPL] does not constitute an express or
implied contract or a promise by IBM to make any distributions under it.
IBM reserves the right to adjust the [IPL] terms, including, but not
limited to, changes to sales performance objectives (including
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management-assessment objectives), changes to assigned customers,
territories, or account opportunities, or changes to applicable incentive
payment rates or quotas, target incentives or similar earnings
opportunities, or to modify or cancel the [IPL], for any individual or group
of individuals, at any time during the [IPL] period up until any related
payments have been earned under the [IPL] terms. . . . Employees should
make no assumptions about the impact potential [IPL] changes may have
on their personal situations unless and until any such changes are
formally announced by IBM.
Adjustment for Errors: IBM reserves the right to review and, in its
sole discretion, adjust or require repayment of incorrect incentive
payments resulting from incomplete incentives processes or other
errors in the measurement of achievement or the calculation of
payments, including errors in the creation or communication of
sales objectives. Depending on when an error is identified,
corrections may be made before or after the last day of the full-
[IPL] period, and before or after the affected payment has been
released.
....
Plan-to-Date Advance Payments: Regardless of the start date of
your assignment to [an IPL], the full-[IPL] period ends on the last
day of the last month of the full-[IPL] period. Incentive payments
you may receive for [IPL]-to-Date achievement (before the full-[IPL]
period is over and before its business results are complete) are a
form of advance payment based on incomplete business results.
As each month’s or quarter’s business results become available,
[IPL]-to-Date achievement against any full-[IPL] performance
objectives will be updated and the amount of your [IPL]-to-Date
advance payments will be recalculated. Deductions for
overpayments or reversed achievement may be made from any
such [IPL]-to-Date advance payments until the full-[IPL] payments
are earned under the [IPL] terms after the full-[IPL] period and its
business results are complete.
Full-Plan Earnings: Regardless of your start date, your incentive
payments are earned under the [IPL] terms, and are no longer
considered [IPL]-to-Date advance payments, only after the
measurement of complete business results following the end of the
full-[IPL] period or (if applicable) after the measurement of
complete business results after the date you left the Incentive Plan
early. Incentive payments will be considered earned only if you
have met all payment requirements, including: (1) you have
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complied with the [IPL], the Business Conduct Guidelines and all
other applicable IBM employment policies and practices; (2) you
have not engaged in any fraud, misrepresentation or other
inappropriate conduct relating to any of your business
transactions or incentives; (3) and the customer has paid the
billing for the sales or services transaction related to your incentive
achievement.
....
Significant Transactions: IBM reserves the right to review and, in
its sole discretion, adjust incentive achievement and/or related
payments associated with a transaction which (1) is
disproportionate when compared with the territory opportunity
anticipated during account planning and used for the setting of
any sales objectives; or for which (2) the incentive payments are
disproportionate when compared with your performance
contribution towards the transaction.
The IPL also stated that IBM was “not obligated to offer . . . an alternative [IPL]
. . . [or] another job role within the company” to any sales representative who
did not accept the IPL terms.
Khoury acknowledged the terms of the IPL and accepted it on July 16,
2014. By the end of the IPL period, he had met and surpassed his quota for
the specified signings. At the DOL hearing, he testified that, in December
2014, his manager informed him that this entitled him to a commission
payment of $154,124.21. That same month, he received $47,619.23 in
advances from IBM towards this commission. Khoury testified that he
subsequently made repeated unsuccessful inquiries about the additional
funds.
In March 2015, Khoury filed a wage claim with the DOL for $106,504.65,
the balance of the commission. One month later, Khoury was informed that
IBM planned to change his IPL terms by increasing the original quota from
$571,000 to $1,000,000. Khoury testified that he was told that he could
expect to receive a final payment of approximately $35,000 to $36,000. He
stated that he then received a payment of $34,558.71 in May. Upon receiving
this payment, Khoury reduced his wage claim against IBM from $106,504.65 to
$71,946.27.
Khoury testified that participation in the pilot program was mandatory,
and that sales representatives “ha[d] to accept the terms of [the IPL], or [they]
ha[d] to either change [their] position within the company or find a new place to
work.” He also stated that IBM did not begin to describe the pilot program as
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“a pilot program” until “later in 2014 and into 2015” and that, before that, it
was considered “the program you’re going to sell under.” Khoury explained
that his understanding, after reading the IPL, was “that all of the work that I
did during the [IPL] term . . . and all of the commissions that I earned would be
paid during the term[] of this [IPL].”
Khoury testified that, although IBM had recognized him as a “Global
Sales Hero” for his sales achievements in the third quarter of 2014, it delayed
paying him the commissions he was owed. According to Khoury:
[I]n early November 2014, we were on a conference call in which we
were told not that anyone was being capped, not that commissions
were changing, or anything else, that it was a new pay system, and
therefore it was taking a little bit longer.
. . . They were trying to get our commissions to [route] through
this new system, and there was going to be a check paid to us in
full at the end of November 2014. That didn’t happen.
. . . [E]verything that was spoken to us was around this
common lie that it was just a matter of time, that the system was
broken, you gentlemen did a wonderful job, you’re going to get
your money, and it’s -- just wait a little bit longer. Trust us and
wait.
Khoury stated that it was not until May 2015 that he was informed by “IBM
federal leadership” that his sales quota would be adjusted upward, thereby
reducing his commission.
Susan Deyo, IBM’s Vice President of Sales Strategy and Transformation
for North America, testified that IBM started getting “customer reports” in
October 2014 that showed that the majority of IBM sales representatives in the
pilot program had already made their quota amount. She stated that, in
January 2015, “more reports” came in, and that by January 15, 2015, they
had the results of the plan period; it was around that time that she and several
other IBM executives began to discuss “what [they] were going to do on
adjusting the quotas because [they] had determined the quotas were set
incorrectly.” She testified that these discussions were started again in
February and led to an assessment in March. She stated that employees in the
pilot program were notified in April that there would be a change, but not what
the change was, or when it took effect.
Following the hearing, the DOL hearing officer concluded that IBM
violated RSA 275:49 (Supp. 2016) and New Hampshire Administrative Rules,
Lab 803.03(c) (Lab 803.03(c)) because IBM had changed the amount of
Khoury’s quota from $571,000 to $1,000,000 and had failed to notify him of
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the change “prior to the change becoming effective.” The relevant provisions of
RSA 275:49 provide that “[e]very employer shall . . . [n]otify the employees, at
the time of hiring of the rate of pay, and of the day and place of payment,” RSA
275:49, I, and “[n]otify his or her employees of any changes in the
arrangements specified [in paragraph I] prior to the time of such changes,” RSA
275:49, II. Lab 803.03(c) states that “every employer shall inform his or her
employees in writing of any change to such employees[’] rate of pay, salary, or
employment practices or policies . . . prior to the effective date of such change.”
N.H. Admin. R., Lab 803.03(c). The hearing officer found unpersuasive IBM’s
“argument that Courts have consistently upheld the right to modify, change or
cancel terms of a commission policy, providing there is notice in the policy
itself.” Thus, the hearing officer determined Khoury was owed the full amount
of his wage claim. The hearing officer did not address the issue of whether the
IPL constituted a contract.
IBM appealed to the trial court. See RSA 275:51, V (2010). In November
2015, the trial court held a non-evidentiary hearing based upon the record
established at the DOL. See id. The court concluded “that the IPL established
a default commission scheme that would automatically ripen into a contractual
right to commissions calculated under that scheme, unless the incentive plan
was altered or eliminated prior to the measurement of business results. IBM
changed Khoury’s incentive plan after this deadline and communicated this
fact to him in writing after the change became effective.” (Emphasis omitted.)
The court reasoned:
The IPL purports not to be a contract. However, IBM committed
itself to pay all incentives that have actually been “earned.” These
two statements, contained in the same paragraph, are oxymoronic.
The only way to round the circle is to construe the paragraph as
giving the employee no contractual rights up until the moment the
incentive payments have been earned.
The court determined that Khoury had “earned” his incentive payments on
January 15, 2015, the date when IBM had available to it the business results
for the IPL period ending on December 31, 2014. The court acknowledged that
the IPL provided that incentive payments are “earned” “only after the
measurement of complete business results following the end of the full-Plan
period,” but concluded that the plain and ordinary meaning of “measurement”
as used in the IPL is “ministerial bean counting and the application of
accounting principles rather than discretionary or strategic planning.” The
court further concluded that the provision of the IPL dealing with “Adjustments
for Errors” was “a safety valve for ministerial mistakes in measurement,
calculation and communication,” and that “[t]he ability to ‘correct errors’ does
not entitle IBM to rethink its commission scheme after commissions have been
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fully earned.” Thus, the court concluded that “[a] reasonable employee would
view the document as a whole as establishing a default commission formula,
albeit one that could be changed prior to the measurement of business
results.” Having ruled that IBM changed Khoury’s incentive plan after the
measurement of business results, the court affirmed the DOL’s decision. In
addition, the trial court awarded Khoury attorney’s fees and statutory interest
pursuant to RSA 275:53 (2010) and RSA 524:1-b (2007), respectively. Khoury’s
request for an award of liquidated damages pursuant to RSA 275:44 (2010)
was denied. This appeal followed.
II
On appeal, IBM argues that the trial court erred by finding Khoury’s
wage claim valid, asserting that: (1) IBM had no obligation to pay commissions
to Khoury in any set amount, including on the basis of the original quota,
because the IPL was not an enforceable agreement; and (2) RSA 275:49 and
Lab 803.03(c) do not apply to the IPL presented to Khoury because the IPL,
which is not an enforceable agreement, does not establish “wages” or a “rate of
pay” under the terms of those laws. See RSA 275:49; N.H. Admin. R., Lab
803.03(c). IBM alternatively argues that, even if the IPL is an enforceable
contract, IBM did not violate its obligations to Khoury because the IPL’s terms
granted IBM an “unfettered right to reduce [Khoury’s] commissions and adjust
his quota” after the measurement of business results for 2014. Finally, IBM
asserts that the trial court erred by awarding Khoury attorney’s fees and
statutory interest.
Any party aggrieved by a DOL wage claim decision may appeal to the trial
court by petition, setting forth that the decision is erroneous, in whole or in
part, and specifying the grounds upon which the decision is claimed to be in
error. See RSA 275:51, V. “The scope of review by the superior court shall be
limited to questions of law.” Id. “After hearing and upon consideration of the
record, the court may affirm, vacate or modify in whole or in part the decision
of the commissioner, or may remand the matter to the commissioner for
further findings.” Id. “We, in turn, review de novo the trial court’s decisions on
questions of law.” Ichiban Japanese Steakhouse v. Rocheleau, 167 N.H. 138,
140 (2014).
A
IBM first asserts that the trial court erred by determining that the IPL
was an enforceable contract that imposed an obligation upon IBM to pay
Khoury his secondary commission as calculated under the original IPL
formula. IBM argues that the lengthy disclaimers in the IPL, especially the
language that the IPL “does not constitute an express or implied contract or a
promise by IBM to make any distributions under it,” prevent the IPL from being
7
construed as a contractual offer, and, consequently, an enforceable agreement
or contract. Khoury, however, argues that the IPL constituted an agreement
that obligated IBM to pay him the full amount of the secondary commission.
Thus, we read the parties’ arguments as focusing upon whether the IPL is an
enforceable contract.
“Offer, acceptance and consideration are essential to contract formation.”
Chisholm v. Ultima Nashua Indus. Corp., 150 N.H. 141, 144 (2003). “An offer
is the manifestation of willingness to enter into a bargain,” Restatement
(Second) of Contracts § 24, at 71 (1981), while an agreement “is a
manifestation of mutual assent on the part of two or more persons,” id. § 3, at
13. “A valid offer may propose the exchange of a promise for a performance.”
Chisholm, 150 N.H. at 144 (quotation and ellipsis omitted). “Consideration is
present if there is either a benefit to the promisor or a detriment to the
promisee.” Id. at 145. Finally, a contract requires a meeting of the minds
about the contract’s terms: “each party must have the same understanding as
to the terms of the agreement.” Simonds v. City of Manchester, 141 N.H. 742,
744 (1997) (quotation omitted).
“In determining the actual understanding and intent of the parties, the
trier of fact should consider the objective meaning of the expressed contract
terms.” Tsiatsios v. Tsiatsios, 140 N.H. 173, 178 (1995). “The intent of the
parties is determined by an objective standard, and not by actual mental
assent.” Id. (quotation omitted). “An objective standard places a reasonable
person in the position of the parties, and interprets [contractual terms]
according to what a reasonable person would expect [them] to mean under the
circumstances.” Behrens v. S.P. Constr. Co., 153 N.H. 498, 502 (2006).
“[U]ndisclosed meanings and intentions are immaterial in arriving at the
existence of a contract between the parties.” Simonds, 141 N.H. at 744
(quotation omitted).
Viewed objectively, the language in the IPL is contradictory. On the one
hand, the IPL states that it “does not constitute an express or implied contract
or a promise by IBM to make any distributions.” However, the IPL also states
that IBM “reserves the right to adjust the [IPL] terms, . . . or to modify or cancel
the [IPL] . . . at any time during the [IPL] period up until any related payments
have been earned under the [IPL] terms,” implying that IBM loses its right to
modify or cancel the IPL after the payments have been “earned,” and that it
then becomes obligated to pay the employee. (Emphasis added.) Similarly, the
IPL states that payments are “earned under the [IPL] terms, and are no longer
considered [IPL]-to-Date advance payments, only after the measurement of
complete business results following the end of the full-[IPL] period.” This term
also limits IBM’s right to cancel the agreement: it cannot do so once complete
business results have been measured. Thus, the IPL purports not to be a
contract, yet simultaneously limits IBM’s ability to cancel the agreement and
8
imposes upon IBM an obligation to pay the employee after commission
payments have been earned.
Although we have previously held that unambiguous disclaimers are
effective in rendering certain portions of employment documents
unenforceable, see Butler v. Walker Power, 137 N.H. 432, 436-37 (1993), we
have not addressed a situation in which a disclaimer is contradicted by
language that evinces an intent by the employer to be bound under certain
conditions. At least one other court has ruled that, when a disclaimer in an
employment document is “rationally at odds” with other language in the
document, an employer may be bound to the terms of the document despite
the presence of the disclaimer. See Strass v. Kaiser Foundation Health Plan,
744 A.2d 1000, 1013 (D.C. 2000).
Here, we conclude that a reasonable person in the position of the parties
would construe the IPL as presenting Khoury with a limited contractual offer;
namely, that if he performed satisfactorily under the terms imposed in the IPL,
and if IBM did not adjust the quotas or the terms of the IPL prior to the time
that his commissions were “earned” as that term is defined in the IPL, IBM
then became obligated to make the commission payments to him as originally
calculated. See 11 Richard A. Lord, Williston on Contracts § 32.5, at 692-99
(4th ed. 2012) (“A contract will be read as a whole and every part will be read
with reference to the whole. If possible, the contract will be so interpreted as to
give effect to its general purpose as revealed within its four corners or in its
entirety.” (footnotes omitted)). Khoury accepted IBM’s offer on July 16, 2014,
and thereafter furnished consideration by performing under the IPL and
meeting his quota.
Furthermore, the language of the IPL suggests that there was, in fact, a
“meeting of the minds.” Viewing the IPL terms objectively, a reasonable person
would view the document as establishing a default scheme for the calculation
of commission payments, albeit one that could be adjusted by IBM up until
those payments had been earned. As the trial court aptly observed in rejecting
IBM’s position that the IPL was not designed to establish a default commission
formula:
Why else include a specific formula? Why else require employees
to “accept” the formula? Why else reserve the right to make
changes up until the time commissions are “earned”? Why say
that commissions are earned upon “measurement” of business
results? Why include a severability clause in case one or more
disclaimers conflicts with state law? Why include terms and
conditions if there is no underlying deal to which they apply?
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We conclude that a reasonable person viewing the language of the IPL would
reconcile the contradictory language by construing it to grant Khoury
contractual rights to his commission once business results for that IPL period
were measured. See id. Thus, there was a valid offer, acceptance,
consideration, and, objectively viewing the IPL, a meeting of the minds. See
Chisholm, 150 N.H. at 145; Simonds, 141 N.H. at 744.
We acknowledge, as did the trial court, that a number of federal courts
have held that various iterations of IBM’s IPLs did not constitute enforceable
contracts under the circumstances presented in those cases. See Kavitz v.
International Business Machines, 458 F. App’x 18, 20 (2d Cir. 2012); Geras v.
International Business Machines Corp., 638 F.3d 1311, 1316-17 (10th Cir.
2011); Jensen v. International Business Machines, 454 F.3d 382, 388 (4th Cir.
2006); Schwarzkopf v. Int’l Bus. Machs., Inc., No. C 08-2715 JF (HRL), 2010
WL 1929625, at *8-9 (N.D. Cal. May 12, 2010); Gilmour v. Int’l Bus. Machs.
Corp., No. CV 09-04155 SJO (AGRx), 2009 WL 871253, at *2 (C.D. Cal. Dec.
16, 2009); Rudolph v. Int’l Bus. Machs. Corp., No. 09 C 428, 2009 WL
2632195, at *4 (N.D. Ill. Aug. 21, 2009). However, those cases do not control
our interpretation of the IPL in this case under New Hampshire contract law,
and they are factually distinguishable.
In Kavitz, the plaintiff challenged IBM’s calculation of his commission for
a transaction involving a single customer. Kavitz, 458 F. App’x at 19. The
court’s opinion does not reveal whether IBM recalculated the commission
before or after it had been “earned” under the plan. Indeed, as the trial court
noted, the opinion does not even indicate when commissions would be “earned”
under the plan. Without that information, Kavitz provides us with little
guidance.
Moreover, Kavitz relies upon Geras and Jensen, stating that it finds
persuasive the relevant analysis in those decisions. Id. at 20. In Geras,
however, the court considered changes made to the plaintiff’s incentive plan
prior to the payments having been “earned.” Geras, 638 F.3d at 1316 n.1. The
court specifically noted that the case “does not raise the question of whether an
employee might succeed on a contract or promissory estoppel case against IBM
for payments that were not refused until after they had been deemed earned
under the plan’s terms.” Id. Thus, Geras provides no guidance with respect to
the issue before us, which, as discussed below, involves adjustments to
incentive payments made by IBM after the payments were “earned” under the
plan’s terms.
In Jensen, the plan provided that IBM reserved the right to adjust the
program terms or to cancel or otherwise modify the program “at any time
during the program period, or up until actual payment has been made under
the program,” and further provided that “no one becomes entitled to any
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payment in advance of his or her receipt of the payment.” Jensen, 454 F.3d at
385 (quotations omitted). Thus, Jensen also provides no guidance with respect
to the issue before us.
Similarly, Rudolph involved an incentive plan that allowed IBM to modify
or cancel it “at any time for any reason — on a prospective or retroactive basis.”
Rudolph, 2009 WL 2632195, at *1. Nothing in the opinion indicates whether
the plan stated when commissions would be “earned,” and, in any event, the
plan was terminated by IBM during the plan term. Id.Schwarzkopf involved a modification by IBM of a “significant
transaction.” Similarly to the plan before us, the plan in Schwarzkopf
contained a “Significant Transactions” provision that permitted IBM to adjust:
(1) incentive payments associated with transactions that were disproportionate
when compared with the territory opportunity or quota size; and (2) incentive
payments that were disproportionate when compared with the employee’s
performance contribution towards the transactions. Schwarzkopf, 2010 WL
1929625, at *2. The plan also contained, similarly to the plan before us, a
“Right to Modify or Cancel” provision that permitted IBM to adjust the plan
terms or cancel the plan “at any time during the Plan period up until any
related payments have been earned under its terms.” Id. at *1. The court
stated that the “Significant Transactions” clause appeared to allow IBM to
adjust disproportionate incentive payments at any point, but that the more
restrictive language in the “Right to Modify or Cancel” provision “may prevent
IBM from modifying the terms of the incentive plan once a salesperson ‘earns’
[a] commission.” Id. at *9. Thus, Schwarzkopf, like Geras, provides no
guidance for deciding this case, where IBM adjusted Khoury’s commission after
it had been “earned,” and where the commission was not adjusted under the
“Significant Transactions” provision.
Finally, in Gilmour, the court relied upon IBM’s offer letter, which stated
that IBM reserved the right to modify or cancel the incentive plan “at any time.”
Gilmour, 2009 WL 8712153, at *1 (quotation omitted). Although the court also
noted that the employee had received a “quota letter” that provided that IBM
could adjust or cancel the plan “up until any related payments have been
earned under its terms,” the court’s opinion does not discuss or reveal whether
or how payments were to be “earned” under the terms of the IPL. Id. (quotation
omitted). If the payments had not been earned when IBM changed the plan,
then the case is not on point with the instant case. If the payments had been
earned, then in light of the court’s failure to consider that fact in its analysis,
we find its analysis to be unpersuasive.
We conclude that the specific terms of the IPL constituted an enforceable
contract, which granted Khoury rights to a commission once it had been
earned pursuant to the IPL terms. See Demers Agency v. Widney, 155 N.H.
11658, 662 (2007) (affirming trial court’s determination that an employee’s bonus
qualified as wages for purposes of RSA chapter 275, but limiting holding to
“those circumstances in which a bonus is part of an agreed-upon
compensation package and the employee has performed all of the duties
necessary to trigger the employer’s obligation to pay the bonus”); cf. Geras, 638
F.3d at 1316 n.1 (noting that the case did not raise the question of whether the
plaintiff might succeed against IBM “for payments that were not refused until
after they had been deemed earned under the plan’s terms”).
We, therefore, conclude that the IPL is a contract –– one that granted
Khoury rights to his commission once it had been earned pursuant to IBM’s
measurement of complete business results for the IPL period. Accordingly, we
affirm the trial court’s ruling that the IPL constituted a contract.
B
Having established that the IPL is an enforceable contract, we next turn
to the question of whether IBM acted in accordance with its terms.
IBM asserts that, even if an enforceable contract existed, it did not
breach the terms of the IPL because the decision to change the commission
quotas was made before Khoury’s commission payments were “earned.” In
IBM’s view, Khoury’s payments were not “earned” until “after the measurement
of complete business results following the end of the Full-[IPL] period,” a
phrase which IBM interprets to grant it the right to make adjustments of
commission quotas “after it assessed the impact of its complete business
results.” (Quotation omitted.)
Khoury counters that IBM violated the terms of the IPL because the
measurement of business results was completed by January 15, 2015. In
particular, he asserts that neither the “measurement of complete business
results” provision nor the “Adjustment for Errors” provision of the IPL provides
support for IBM’s position because, as the trial court concluded, these
provisions merely allow for the correction of ministerial mistakes, such as
misplacing a decimal point, but do not allow for IBM to rethink its commission
scheme after commissions have been earned. Thus, Khoury argues that IBM’s
retroactive adjustment of his commission quotas was a violation of the IPL
terms.
On this point, we agree with the trial court. The IPL authorizes IBM to
make “changes to applicable incentive payment rates or quotas, target
incentives or similar earnings opportunities, or to modify or cancel the [IPL] . . .
at any time during the [IPL] period up until any related payments have been
earned under the [IPL] terms.” The IPL also states that incentive payments are
“earned under the [IPL] terms . . . only after the measurement of complete
12
business results following the end of the full-[IPL] period.” Thus, the plain
language of the IPL supports the trial court’s conclusion that “IBM’s ability to
change or eliminate the incentive program ends once the measurement process
is complete.” Here, the record supports the trial court’s conclusion that
complete business results were available by January 15, 2015. Neither party
on appeal challenges the trial court’s statement that “the record does not
suggest that IBM experienced any difficulty or delay in measuring any business
results for the IPL term.” Thus, Khoury’s incentive payments were “earned”
before IBM concluded in March that the quotas should be changed.
IBM argues that the trial court’s reading of the IPL “negates” its right to
adjust the plan’s terms. It contends that the IPL must be read to provide it
with an unspecified period of time following January 15, 2015, in which to
assess the impact of the business results and consider whether to modify or
eliminate the plan. We are not persuaded. The IPL provides that incentive
payments are “earned” after the “measurement” of complete business results.
“Measurement” is defined as “the act or process of measuring something.”
Webster’s Third New International Dictionary 1400 (unabridged ed. 2002). The
relevant definition of “measure” is “to ascertain the quantity, mass, extent, or
degree of in terms of a standard unit or fixed amount.” Id. Had IBM intended
that incentive payments not be “earned” until some period of time had passed
following the measurement of complete business results in order for IBM to
undertake some process of review or evaluation of the incentive program
quotas in light of those results, then it should have clearly so provided in the
IPL.
We note that “measure” is also defined as “to judge or estimate the
extent, strength, worth, or character of (as a quality, action, or person).” Id.However, reading the contract as a whole, we believe that the word
“measurement,” when applied to “business results,” refers to the ascertainment
of the quantity and extent of the results — or, as the trial court put it,
“ministerial bean counting and the application of accounting principles rather
than discretionary or strategic planning.” Moreover, as explained below, our
construction of the term also furthers the purpose of the applicable statute and
regulations.
This reading of the IPL does not negate IBM’s asserted right to modify or
cancel the IPL. Assuming that IBM had the unilateral right to modify or cancel
the plan, it was free to do so at any time during the plan period and up until
the measurement of complete business results following the end of the plan
period. However, once that measurement was completed — here January 15 —
IBM’s right to modify or cancel the plan ended. We note that the trial court
also ruled that IBM retained the right to adjust for errors even after the
measurement of complete business results had occurred, a ruling that is not
challenged on appeal. The adjustment for errors provision of the IPL states
13
that
IBM reserves the right to review and, in its sole discretion, adjust
or require repayment of incorrect incentive payments resulting
from incomplete incentives processes or other errors in the
measurement of achievement or the calculation of payments,
including errors in the creation or communication of sales
objectives. Depending on when an error is identified, corrections
may be made before or after the last day of the full-[IPL] period,
and before or after the affected payment has been released.
This provision provides IBM with a limited right to correct errors in the
“measurement of achievement or the calculation of payments,” including any
such errors that may have occurred in the creation or communication of sales
objectives. Cf. Home Gas Corp. v. Strafford Fuels, Inc., 130 N.H. 74, 82 (1987)
(broader term takes on the more specialized character of its neighbors). We
agree with the trial court that this provision would permit IBM to correct, at
most, ministerial mistakes in measurement, calculation, and communication
after commissions have been earned.
We further note that, unlike the provision of the IPL that governs IBM’s
ability to modify or cancel the program, the provision permitting adjustment for
errors does not provide that such adjustments must be made before payments
have been earned under the plan terms. Moreover, permitting adjustments
based upon ministerial errors in the measurement of achievement or the
calculation of payments after business results have been measured would not
undermine the underlying agreement to pay “earned” commissions — the
correction of such errors merely conforms the result to the actual amount that
the parties intended be “earned.”
Here, there is no allegation that IBM made any “errors in the
measurement of achievement or the calculation of payments” when it created
or communicated its sales objectives to Khoury. This is not a case, as the trial
court explained, in which IBM “misplaced a decimal point” in its creation or
communication of sales objectives. Rather, as the trial court aptly stated, “IBM
delayed paying Khoury solely because it wished to conduct an after-the-fact
reevaluation of what the commission quota should be.”
Our construction of the IPL also furthers the purpose of the applicable
statute and regulations. Cf. Galloway v. Chicago-Soft, 142 N.H. 752, 759
(1998) (we construe RSA chapter 275 in general to effectuate the broad purpose
of protecting employees). RSA 275:49 requires employers to notify all
employees at the time of hiring of the rate of pay, as well as of any changes to
the rate of pay prior to the time of such changes. “Rate of pay” includes the
manner in which commissions are calculated and paid. See N.H. Admin. R.,
14
Lab 803.3(a) (employer shall notify employees as to the rate of pay, whether by
daily, weekly, biweekly, semi-monthly, or yearly, or by commissions, “as well as
the day and place of payment and the specific methods used to determine
wages due”). In addition, Lab 803.3 requires that the notification to employees
of their rate of pay be in writing. One obvious purpose of these provisions is to
ensure that employees understand what their rate of pay will be as well as any
changes that are to be made thereto. Accordingly, it is incumbent upon
employers to clearly set forth the information required by Lab 803.3 in any
notice provided to employees, keeping in mind that the notice required by the
rules is generally intended for non-lawyer employees.
Similar considerations led us to adopt the rule that ambiguous terms in
insurance policies will be construed against the insurer. In Trombly v. Blue
Cross/Blue Shield, 120 N.H. 764 (1980), we explained that an argument in
favor of that rule of construction “is that, since the object of the contract is to
provide protection for the insured, the construction that best achieves this
purpose should be adopted.” Trombly, 120 N.H. at 771. Here, the evident
purpose of RSA 275:49 and Lab 803.3 is to ensure that employees understand
their rate of pay and any changes thereto, including the manner in which
commissions are calculated and paid. Construing any ambiguity in those
portions of the IPL that provide such notice in favor of the employee would
further that purpose. Thus, even were we to agree that the term “measurement
of complete business results” is ambiguous, we would reach the same result in
this case.
Here, IBM set forth a rate of pay that applies once payments are earned,
and stated that payments are earned “after the measurement of complete
business results following the end of the full-[IPL] period.” A reasonable
employee would understand this language to mean what it says — after
complete business results are measured following the end of the full-IPL period,
his or her payments have been “earned.” IBM, on the other hand, would have
us require employees to speculate as to why IBM chose that particular time to
be the time when payments are earned, and surmise that what IBM really
meant to say was that payments are not earned until weeks or months after
the measurement of complete business results, such that IBM could decide to
change the plan in March, as it attempted to do here, despite the fact that
complete business results had been available by January 15. We decline to
construe the IPL in such a manner.
We find further support for our holding in Galloway. There we noted that
as a general rule, a person employed on a commission basis is entitled to a
commission when the order is accepted by the employer. Galloway, 142 N.H.
at 756. We held that this general rule could be altered by a written agreement
by the parties or by conduct of the parties that “clearly demonstrates a
different compensation scheme.” Id. at 757 (emphasis added). Our holding
15
reflects the policy discussed above — when an employer provides notice to an
employee of the rate of pay, it must be clearly set forth. Here, while we agree
that the IPL clearly notified Khoury that his incentive payments would not be
earned until after the measurement of complete business results, that
language “clearly” informed him only that his payments would not be earned
prior to the measurement of complete business results. Nothing in the IPL
“clearly” informed Khoury that his payments would not be earned until months
after complete business results were measured, when IBM concluded its
reevaluation of the plan and redetermined what the quotas should be.
We acknowledge that the Eleventh Circuit Court of Appeals characterized
a “Right to Modify or Cancel” clause, which was similar to the clause at issue in
this case, as providing that commissions “are not earned until business results
are complete—i.e., until IBM assesses the impact of a significant transaction on
an employee’s sales quota.” Wilson v. Int’l Bus. Machs. Corp., 610 F. App’x
886, 889 (11th Cir. 2015) (per curiam). The issue being addressed in that case
was whether IBM’s right to modify ended on June 30, 2011, which was the last
day of the applicable sales period. Id. We do not dispute that the “Right to
Modify or Cancel” clause purports to allow IBM to modify or cancel the plan
after the plan period ended — that is, after December 31, 2014. To the extent
that Wilson may be read as providing IBM with an unspecified period of time
after the measurement of complete business results within which to modify or
cancel the plan, however, we are not persuaded for the reasons set forth above.
We note that the dissent finds support for its view in Walsh v. Zurich
American Insurance Company, 853 F.3d 1 (1st Cir. 2017). The incentive plan
there at issue provided that “INCENTIVE under the PLAN shall be solely within
the discretion of the Executive Vice President of the [employer] and is subject to
interpretation by him/her. The PLAN is subject to cancellation by the
Executive Vice President at any time.” Id. at 5 (emphases added). Further, the
employer explicitly “reserve[d] the right to limit INCENTIVE in unique
situations.” Id. The First Circuit concluded that the Plan did not give the
employee “a vested deferred compensation entitlement,” noting that the Plan
gave the employer broad discretion to limit incentive pay. See id. at 11, 13-15.
The dissent contends that this case is similar because Khoury “was informed
. . . that payments were not ‘earned’ until ‘after the measurement of complete
business results following the end of the full-[IPL] period,’ which would not
occur until IBM had completed its review of the entire IPL period and corrected
any errors that may have occurred in, among other things, the creation or
setting of his quota.” (Emphasis added.) We have no quarrel with the holding
in Walsh. Rather, our disagreement with our dissenting colleague lies simply
in the construction of the IPL, which is very different from the plan language in
Walsh. Had the IPL clearly provided that payments would not be “earned” until
after (1) the measurement of complete business results, and (2) in the words of
the dissent, “IBM had completed its review of the entire IPL period,” then we
16
would be looking at a different case. However, as we explained above, we are
not persuaded that the phrase “after the measurement of complete business
results following the end of the Full-[IPL] period” clearly informed Khoury that
his incentive payments would be earned only after measurement of complete
business results and the completion of IBM’s retrospective assessment of its
quotas — a process which was not time-limited. Thus, we find Walsh of little
assistance in resolving the contract interpretation issue before us.
Finally, we further note that the dissent imagines a parade of horribles
flowing from our decision in this case. We, like the Supreme Court, “do not in
principle oppose the ‘parade of horribles’ form of argumentation, but its
strength is in direct proportion to . . . the probability that the parade will in
fact materialize.” Harmelin v. Michigan, 501 U.S. 957, 986 n.11 (1991) (citing
Scalia, Assorted Canards of Contemporary Legal Analysis, 40 Case W. Res. L.
Rev. 581, 590-93 (1989-1990)). The dissent hypothesizes that our
interpretation of the IPL will “make it all but impossible for IBM to utilize
contracts that give it the option to adjust incentive quotas based on a
retrospective analysis of results,” speculating that “a large company like IBM
will simply decide to relocate its sales force” to other states. Happily, the much
more likely consequence is that a company like IBM, should it wish to have the
option to adjust or eliminate incentive quotas based on a retrospective analysis
of results, will simply hire a skilled attorney who will prepare a contract that
will clearly so provide. This is not difficult, in fact, as IBM has drafted
incentive contracts with its sales force that do just that. See, e.g., Jensen, 454
F.3d at 385 (IBM plan reserved right to adjust program terms or cancel or
modify program “at any time during the program period, or up until actual
payment has been made,” and provided that “no one becomes entitled to any
payment in advance of his or her receipt of the payment” (emphases added)).
Indeed, had Khoury’s contract clearly provided that payments would not be
“earned” until “IBM had completed its review of the entire IPL period” — which
could occur many months after the measurement of complete business results
— we would be looking at a different case. Thus, while the “parade of
horribles” imagined by the dissent may be alarming, the unlikelihood of the
parade actually materializing robs it of any persuasive power. Rather, the more
likely consequence of our decision today will be a parade of clearly written
employment agreements which will benefit employers and employees alike.
Because we conclude that the claimed wages were earned under the
terms of the IPL, we affirm the trial court’s order requiring IBM to pay Khoury
the full amount of his wage claim, less applicable taxes. Therefore, we need
not decide whether IBM violated RSA 275:49 and Lab 803.03(c).
17
C
IBM next challenges the trial court’s award of statutory interest and
attorney’s fees. The challenge to the award of interest is premised upon the
contention that IBM does not owe any wages, which we have rejected above.
Accordingly, we affirm the award of statutory interest.
The challenge to the award of fees is limited to the award of fees for the
proceedings before the DOL. RSA 275:53, III provides that the court “in any
action brought under this subsection may, in addition to any judgment
awarded to the plaintiff or plaintiffs, allow costs of the action, and reasonable
attorney’s fees, to be paid by the defendant.” IBM argues that this section
authorizes the award of fees incurred only in the superior court appeal, not in
the proceedings before the DOL. The trial court ruled that one reasonable
reading of the statute is to “apply the prepositional phrase ‘of the action’ to
both ‘costs’ and ‘reasonable attorney’s fees.’” Read that way, the statute
authorizes the award of fees for the “action,” which began at the DOL.
“We review the trial court’s statutory interpretation de novo. On
questions of statutory interpretation, we are the final arbiter of the intent of the
legislature as expressed in the words of a statute considered as a whole.”
Deere & Co. v. State of N.H., 168 N.H. 460, 471 (2015) (citation omitted). We
have stated that RSA 275:53, III in particular should be read “to effectuate the
broad purpose of protecting employees.” Demers Agency, 155 N.H. at 664. The
trial court’s reasonable reading of the statute furthers that purpose. We
therefore adopt that interpretation and affirm the trial court’s award of
attorney’s fees.
Finally, because Khoury did not cross-appeal the trial court’s denial of
his request for liquidated damages, we express no opinion as to that ruling.
Affirmed.
CONBOY, J., sat for oral argument but did not participate in the final
vote; HICKS and BASSETT, JJ., concurred; LYNN, J., dissented.
LYNN, J., dissenting. Given that the language of the IPL specifically
states it “does not constitute an express or implied contract or a promise by
IBM to make any distributions under it,” I think the question of whether the
IPL constitutes a binding contract is a close call. See Panto v. Moore Business
Forms, Inc., 130 N.H. 730, 742 (1988) (stating that an employer who wishes to
avoid liability for what might otherwise be viewed as benefit-conferring
promises may do so “simply . . . by announcing in the written policy itself that
18
it was not an offer, or a policy enforceable as a contractual obligation”).
However, despite this disclaimer, on balance I agree with the majority that the
terms of the IPL sufficiently manifest an intent by IBM to be legally obligated to
make incentive (commission) payments once they have been “earned.” I
disagree with the majority, however, that IBM breached the terms of the IPL,
and I also believe that IBM did not violate the provisions of RSA 275:49 (Supp.
2016) or New Hampshire Administrative Rules, Lab 803.03 (Lab 803.03). I
therefore would reverse the judgment of the trial court affirming the
Department of Labor’s (DOL) wage claim award and dismiss Khoury’s claim.
I
IBM asserts that it did not breach the terms of the IPL or violate RSA
275:49 or Lab 803.03 because the decision to change the commission quotas
was made before Khoury’s commission payments were “earned.” In IBM’s view,
Khoury’s payments were not “earned” until “after the measurement of complete
business results following the end of the Full-[IPL] period,” a phrase which IBM
interprets to grant it the right to make adjustments of commission quotas
“after it assessed the impact of its complete business results.” (Quotation
omitted.)
Khoury counters that IBM violated the terms of the IPL because the
“measurement of business results” was completed on January 15, 2015, and
IBM did not provide him with written notice of the change of his quota prior to
that date. In particular, he asserts that neither the “measurement of business
results” provision nor the “Adjustment for Errors” provision of the IPL provides
support for IBM’s position because, as the trial court concluded, these
provisions merely allow for the correction of ministerial mistakes, such as
misplacing a decimal point, but do not allow for IBM to rethink its commission
scheme after commissions have been earned. Thus, Khoury argues that IBM’s
retroactive adjustment of his commission quotas was a violation of the IPL
terms, as well as of RSA 275:49 and Lab 803.03.
Unlike the majority, I agree with IBM’s construction of the IPL. The IPL
states that incentive payments are “earned” “after the measurement of com-
plete business results following the end of the full-[IPL] period.” The IPL does
not define the term “measurement.” Therefore, reference to the dictionary to
ascertain the common and ordinary meaning of the term is appropriate. See
Hudson v. Farm Family Mut. Ins. Co., 142 N.H. 144, 147 (1997); see also Hol-
loway Automotive Grp. v. Giacalone, 169 N.H. 623, 628 (2017) (“Absent ambi-
guity, the parties’ intent will be determined from the plain meaning of the lan-
guage used in the agreement.”). The word “measurement” is defined, as perti-
nent here, as “the act or process of measuring something”; “an area, quantity,
degree; or capacity obtained by measuring.” Webster’s Third New International
Dictionary 1400 (unabridged ed. 2002). Likewise, “to measure” means, as rele-
19
vant here, “to regulate or adjust by a rule or standard”; or “to judge or estimate
the extent, strength, worth, or character of” or “to view appraisingly.” Id.The majority agrees that these definitions are accurate, but chooses in-
stead to use an alternative definition (“measure” means “to ascertain the quan-
tity, mass, extent, or degree of in terms of a standard unit or fixed amount,”
id.), which, it claims, when applied to “business results,” permits IBM to en-
gage only in “ministerial bean counting,” such as correcting mathematical er-
rors in sales figures, etc. I do not concede that the alternative definition relied
upon by the majority cabins the meaning of “measure” in the way the majority
asserts. But even if the majority’s alternative definition could be so read, em-
ploying that definition here violates the fundamental principle of construction
of written texts which holds that when two divergent meanings are possible, we
must choose the one that produces reasonable results and eschew the one that
produces illogical results. See Bovaird v. N.H. Dep’t of Admin. Servs., 166 N.H.
755, 763 (2014) (“As between a reasonable and unreasonable meaning of the
language used, the reasonable meaning is to be adopted.”); Marceau v. Concord
Heritage Life Ins. Co., 149 N.H. 216, 220 (2003) (declining to construe a statute
so as to produce an illusory result contrary to legislative intent); Curtis v.
Guaranty Trust Life Ins. Co., 132 N.H. 337, 342 (1989) (declining to interpret
insurance policy language to reach an illogical result); Thiem v. Thomas, 119
N.H. 598, 602-03 (1979) (“This court must, wherever possible, adopt the inter-
pretation of an ambiguous clause that will be in harmony with the remainder of
the document, so that all provisions will have meaning and effect.”).1 As ex-
plained below, the majority’s construction of the term “measurement” causes
the IPL to operate in an illogical and nonsensical manner.
The majority also contends that its narrow interpretation of what it
means to “measure” “business results” furthers the purpose of the wage claim
statute. As I explain in section II of the dissent, however, the opposite is true.
Instead of furthering the purpose of the statute, the majority’s construction of
the IPL is based on a view of the statute that improperly expands its purpose
1
The majority’s reliance on cases such as Trombly v. Blue Cross/Blue Shield, 120 N.H. 764(1980), in which we have construed ambiguous language in insurance policies, assuming it is
even applicable in a non-insurance context, but see Centronics Data Corp. v. Salzman, 129
N.H. 692, 696 (1987) (“This court has applied the rule of construction that interprets ambigu-
ous contract language strictly against the writer only in the context of insurance contracts.”), is
unavailing for the same reasons discussed in the text. That is, even when construing insur-
ance policies that arguably contain ambiguous terms, we have held that the insured is entitled
to the benefit of the alleged ambiguity only if the insured’s construction of the policy language
is reasonable, EnergyNorth Natural Gas v. Continental Ins. Co., 146 N.H. 156, 159 (2001), and
we have cautioned that we will not contort policy language to force an ambiguity merely for the
purpose of resolving it in favor of the insured so as to afford coverage, id. The majority ignores
that admonition here.
20
by effectively requiring IBM to pay “wages” (commissions) that it did not agree
to pay.
Applying the correct dictionary definitions here, I conclude that the trial
court erred by interpreting the phrase “measurement of complete business
results” as narrowly as it did. Rather, I would hold that “measurement of
complete business results” encompasses not only the review, validation and
calculation of various mathematical figures relating to the revenues and
expenses of the previous business period, but also the ability to appraise the
worth of such figures in connection with controlling or regulating strategic
business decision-making. The “Adjustments for Errors” provision of the IPL
supports this construction. It specifically states that IBM “reserves the right to
review and, in its sole discretion, adjust or require repayment of incorrect
incentive payments resulting from incomplete incentives processes or other
errors in the measurement of achievement or the calculation of payments,
including errors in the creation or communication of sales objectives.”
(Emphasis added.) Read together, these provisions plainly contemplate, as
IBM’s Vice President of Sales Strategy and Transformation for North America,
Susan Deyo, affirmed at the DOL hearing, that “measurement of complete
business results” includes affording IBM the discretion to change quotas if it
determines, as it did here, that they were originally established based upon an
error or misjudgment as to projected deployments during the IPL term.2
The majority’s construction of the IPL does not withstand critical
scrutiny. First, although the majority ignores this fact, it is important to note
that the IPL contains no time limit, following the end of the “full-[IPL] period,”
within which the measurement of complete business results must be
accomplished. Thus, even under the majority’s construction of the term
“measurement” as limited to ministerial bean-counting, the mere fact — which
is all the record below establishes — that complete business results were
available on January 15, 2015, does not mean that IBM actually measured
2 I do not agree with the majority’s contention that, unlike the “Right to Modify or Cancel” sec-
tion of the IPL, the “Adjustments for Errors” section allows errors to be corrected after commis-
sions have been “earned.” Neither of the foregoing sections of the IPL define when commissions
are “earned.” Instead, that definition is contained in the “Full-Plan Earnings” section of the
IPL, which states that “[commissions] are earned . . . only after the measurement of complete
business results following the end of the IPL period.” Thus, although the “Adjustments for Er-
rors” section does allow for the recapture of payments that may have been released before an
error has been discovered, the most sensible construction of these provisions, read as a whole,
is that until errors have been discovered and corrected, the “measurement of complete busi-
ness results” has not occurred and therefore commissions have not been “earned.” (Emphasis
added.) Per the “Full-Plan Earnings” section of the IPL, payments made before the time they
are “earned” are considered “advance payments,” which is why they can be recaptured.
21
them — or was required to have measured them — by that date. Since the IPL
is silent as to the time period within which “measurement” must be
accomplished, our customary method of contract construction would read into
the IPL a requirement that IBM accomplish the measurement within a
reasonable time. See Erin Food Services, Inc. v. Derry Motel, Inc., 131 N.H.
353, 360 (1988). Although Khoury’s position before the DOL was that his
commissions were earned no later than January 15, 2015, when IBM was
aware of the complete business results for the IPL period, he made no
independent claim that, if his construction of the IPL was incorrect, IBM
nonetheless delayed unreasonably before it made the decision to alter the
quota. Thus, there is no valid basis for concluding that the timeliness of IBM’s
measurement of complete business results violated the terms of the IPL.
The majority concedes, as it must, that at any time during or after the
IPL period prior to the measurement of complete business results, IBM could
have amended or cancelled the IPL in any way it chose. This means that at
any time after Khoury had performed some or all of his duties under the
contract, but while IBM had less than complete information on business
results for the IPL period, IBM could have made the decision to retroactively
increase (or cancel) Khoury’s quota based either on ministerial or mathematical
errors (so-called “bean counting” mistakes) or on substantive changes in the
company’s strategic planning or assessment of likely business outcomes for the
period. Yet, according to the majority, the moment IBM possessed all the
information (i.e., “complete business results”) that would place it in a position
to make the most intelligent decision-making as to whether substantive
changes to the IPL should be made, it simultaneously lost the ability to do
so. How can the creation of such a Catch 22 situation possibly be regarded as
a sensible construct of the IPL?3
Accepting the majority’s view, however tenuous, that IBM actually
“measured” complete business results on January 15, 2015, if one day earlier,
on January 14, it had enough of a hint as to what the results would show, it
could have made the exact change to Khoury’s quota that it made in April,
without breaching the contract. Because the majority accepts that IBM could
have made such change, it simply makes no sense to interpret the IPL to mean
that IBM suddenly lost the ability to do so when it obtained the complete
results the next day. Khoury would certainly have been in no worse position
because the decision to change the quota was made one day later since, even
under the majority’s construction of the IPL, IBM could have made the change
3
Joseph Heller, the author of Catch-22 (Simon & Schuster 1961), must be smiling down from
above, content in the knowledge that the paradoxical reasoning described in his novel lives
on. Mr Heller died in 1999. See https://en.wikipedia.org/wiki/Joseph_Heller (last visited Dec.
10, 2017).
22
subsequent to the close of the IPL period and, thus, after Khoury had already
performed all the work on which his quota was based. The only sensible
construction of the IPL is that it gives IBM a reasonable time after the receipt of
complete business results to measure those results, not just to correct them for
ministerial errors, but to substantively assess them, and then to make a
decision as to whether to modify the IPL’s terms, including changing the quota.
See Wilson v. Int’l Bus. Machs. Corp., 610 F. App’x 886, 889 (11th Cir. 2015)
(per curiam) (interpreting terms of an IPL with pertinent language identical to
that at issue here as providing: “Commissions are not earned . . . until IBM
assesses the impact of a significant transaction on an employee’s sales quota.”
(emphasis added)).
I draw support for my view as to the proper construction of the IPL from
the First Circuit Court of Appeals’ recent decision in Walsh v. Zurich American
Insurance Company, 853 F.3d 1 (1st Cir. 2017). Walsh was a diversity case
removed to federal court, in which the plaintiff brought claims against his
employer for, among other things, breach of contract and violation of New
Hampshire’s wage claim statute. Walsh, 853 F.3d at 7. The claims were
based, in part, upon the plaintiff’s contention that the employer wrongfully
failed to pay him an incentive pursuant to a contemplated incentive plan (the
Plan). Id. The Plan contained language providing that “INCENTIVE under the
PLAN shall be solely within the discretion of the Executive Vice President of the
[employer] and is subject to interpretation by him/her. The PLAN is subject to
cancellation by the Executive Vice President at any time.” Id. at 5 (quotation
omitted). It also stated that “[m]anagement of the [employer] reserves the right
to limit INCENTIVE in unique situations.” Id. (quotation omitted). At trial, the
district court declined to instruct the jury on the implied covenant of good faith
and fair dealing because it decided that New Hampshire law barred the
employer “from relying on the Plan’s discretion provisions.” Id. at 9, 10.
The First Circuit reversed, holding that the district court should have
instructed the jurors that, if they found the Plan to be an enforceable
agreement, “because the Plan expressly gave [the employer] discretion to limit
incentive pay, they must go on to determine whether the [employer] reasonably
and in good faith exercised that authority — i.e., whether the particular
changes to [the plaintiff’s] compensation package . . . satisfied the implied
contractual covenant of good faith.” Id. at 15. It reasoned that, unlike the
commission agreements at issue in cases such as Galloway v. Chicago-Soft,
Ltd., 142 N.H. 752 (1998), on which the majority relies, the Plan did not give
the plaintiff “a vested deferred compensation entitlement, equivalent to an
ordinary commission.” Id. at 11 (quotation omitted). After noting several
factors that distinguished the Plan from an ordinary commission arrangement,
the court observed:
23
[The plaintiff] was told in express terms that, notwithstanding the
formula in the Plan, the incentive pay he will receive in the future
may be limited by management in “unique situations.” In other
words, he was warned that his incentive pay may differ from the
Plan’s terms. He accepted the Plan with that warning.
Id. at 13.
Although the present case does not involve incentive payments for a
unique transaction, id. at 3, I find the First Circuit’s reasoning persuasive.
Like the plaintiff in Walsh, Khoury was specifically informed at the time he
accepted the IPL that IBM could “adjust the [IPL] terms,” which included
making changes to the incentive quota, at any time up until incentive
payments were “earned.” He also was informed at the same time that
payments were not “earned” until “after the measurement of complete business
results following the end of the full-[IPL] period,” which would not occur until
IBM had completed its review of the entire IPL period and corrected any errors
that may have occurred in, among other things, the creation or setting of his
quota. Khoury accepted the terms of the IPL with this knowledge.
II
This brings me to the wage claim statute.4 In considering Khoury’s stat-
utory claim, it is important to note at the outset that, other than in circum-
stances having no applicability to this case (e.g., payment of the minimum
wage, etc.), no provision of the wage law, RSA 275:42-:55 (2010 & Supp. 2016),
can be read to impose upon an employer an obligation to pay commissions that
it has not agreed to pay. Indeed, RSA 275:42, III (Supp. 2016) specifically de-
fines “wages” as meaning “compensation, including . . . other agreement[s]
adopted for the benefit of an employee and agreed to by his employer, for labor
or services rendered by an employee, whether the amount is determined on a
time, task, piece, commission, or other basis of calculation.” (Emphasis add-
ed.) See Demers Agency v. Widney, 155 N.H. 658, 662 (2007) (noting, in up-
holding ruling that employee was entitled to bonus, “[o]ur holding is limited to
those circumstances in which a bonus is part of an agreed-upon compensation
package and the employee has performed all of the duties necessary to trigger
the employer’s obligation to pay the bonus” (emphasis added)). Thus, as long
as the employer provides clear prior notice to the employee of the discretionary
nature of his or her compensation, and the employee voluntarily agrees to such
4
Although the majority finds it unnecessary to address the statutory claim, because I would
reverse the trial court’s decision affirming the DOL’s wage claim award I must address this
claim since it provides an alternative ground on which that decision arguably could be sus-
tained.
24
an arrangement, nothing in RSA chapter 275 precludes such an employment
contract.
With the foregoing in mind, I now turn to the specific statutory provi-
sions at issue. RSA 275:49 and its implementing regulations require that em-
ployers notify their employees in writing of their rate of pay at the time of hire,
and also require that employers notify their employees in writing of any change
in the rate of pay before the change becomes effective. See RSA 275:49, I, II;
N.H. Admin. R., Lab 803.03(a), (c). The obvious purpose of these provisions is
to insure that at-will employees, such as Khoury, who enter into unilateral con-
tracts with employers, such as IBM, by accepting the employer’s promise to pay
wages in consideration for the performance of services, know in advance the
rate of pay at which they will be compensated. This allows an employee who is
not satisfied with the offer (or the proposed change to the offer) to decline it be-
fore he or she performs any work.
Here, IBM complied with RSA 275:49, I, and Lab 803.03(a) by notifying
Khoury in the IPL, which was executed at the outset of the period it covered,
that his commissions were subject to changes resulting from, among other
things, IBM’s reassessment of the quotas needed to produce an appropriate
level of incentive among its workforce. Thus, when IBM acted — in accordance
with what it informed Khoury at the beginning of the contract it had the right
to do — by modifying his quota, this did not constitute a “change” in the rate of
pay within the meaning of RSA 275:49, II or Lab 803.03(a) and (c) for which
IBM was required to provide Khoury some type of further advance notice. To
read the statute or the regulation, as the DOL and the trial court did, to require
such notice is to impose a meaningless redundancy that is illogical and does
not accomplish the statutory purpose. See Favazza v. Braley, 160 N.H. 349,
351 (2010) (stating that in construing a statute we “examine the statute’s over-
all objective and presume that the legislature would not pass an act that would
lead to an absurd or illogical result”). Thus, even under the majority’s con-
struction of the IPL, IBM would have been entitled to change Khoury’s quota
retroactively after the conclusion of the IPL period up until complete business
results were “measured” merely by providing him with written notice in ad-
vance that it intended to do so. But how would the receipt of such notice have
served to “protect” Khoury in the manner contemplated by the statute? For ex-
ample, if IBM had informed Khoury in writing on January 1 that it intended to
modify his quota as of January 15, what could Khoury have done to “protect”
himself? The answer is that he could have done nothing because he had al-
ready fully performed his side of the bargain by generating the deployments on
which his commissions, of whatever amount, were based. For purposes of the
statute, Khoury was in no worse position because he was not notified of the
modification of his quota until after January 15.
25
The majority’s implicit acknowledgment that the IPL validly gave IBM the
ability to implement a change in Khoury’s quota that applied retroactively to
work he had already performed demonstrates the reality that RSA 275:49, II
and the regulations that implement this paragraph of the statute have no ap-
plicability to this case. The attempt by the hearings officer and the trial court
to apply these provisions nonetheless based on an asserted tardiness in IBM’s
providing post-performance notice of the measurement of business results pro-
duces a tortured construction that does not serve the protective purpose the
statute is designed to achieve.
III
There is no question that the IPL, as properly construed, is a bargain
heavily skewed in favor of IBM, in that it gives the company broad discretion to
retroactively modify Khoury’s quota. See Wilson, 610 F. App’x at 889 (“The IPL
may indeed include terms that are very favorable to IBM, but those are the
terms Mr. Wilson admittedly accepted.”). As we have long recognized, however,
a contract which seemingly gives one party unrestricted discretion to modify its
terms is subject to “an implied obligation of good faith to observe reasonable
limits in exercising that discretion, consistent with the parties’ purpose or pur-
poses in contracting.” Centronics Corp v. Genicom Corp., 132 N.H. 133, 143
(1989). Therefore, when one party takes discretionary action that is adverse to
another party, we evaluate whether that “exercise of discretion exceeded the
limits of reasonableness.” Id. at 144. This evaluation “depends on identifying
the common purpose or purposes of the contract, against which the reasona-
bleness of the complaining party’s expectations may be measured, and in fur-
therance of which community standards of honesty, decency and reasonable-
ness can be applied.” Id. We also evaluate whether the damage complained of
is caused by the acting party’s abuse of discretion or by events that are beyond
the control of either party –– events against which the acting party has no obli-
gation to protect the injured party. See id.In this case, Khoury’s position before the DOL was that IBM had no dis-
cretion to change his quota after what, in his view, was the “measurement” of
complete business results that occurred on January 15, 2015. He never raised
an alternative claim that, assuming the IPL authorized the retroactive increase
of his quota, IBM acted unreasonably or in bad faith in doing so. Had he made
this claim, I would have no hesitancy in remanding to the department to ad-
dress the issue and determine if Khoury was entitled to relief on that basis.
See Walsh, 853 F.3d at 15. However, since Khoury did not raise this issue, the
issue is waived. I therefore would reverse the decision of the trial court and
dismiss Khoury’s claim for unpaid wages. I would also reverse the trial court’s
award of attorney’s fees and statutory interest to Khoury.
26
As the above discussion demonstrates, it is hard to conclude other than
that the majority has rendered a result-oriented decision, apparently driven by
the view that the IPL could not possibly mean what it plainly says because that
would be “unfair” to Mr. Khoury. The majority’s well-meaning but paternalistic
instinct to “protect” Khoury, a sales executive who, for the period in question,
earned a base salary of $128,000 per year before any of the commissions at is-
sue, by rewriting the contract to strike a better deal for him than he made for
himself not only contravenes the proper bounds of judicial authority, see Ol-
bres v. Hampton Coop. Bank, 142 N.H. 227, 233 (1997) (“courts cannot make
better agreements than the parties themselves have entered into or rewrite con-
tracts merely because they may operate harshly or inequitably”), but also may
portend unfortunate consequences for future employees, and even perhaps
more broadly for our state.5 Now that, at least in New Hampshire, today’s deci-
sion “interprets” clear contractual language in such a strained way as to make
it all but impossible for IBM to utilize contracts that give it the option to adjust
incentive quotas based on a retrospective analysis of results, going forward the
company will likely be inclined to set quotas at sufficiently high levels to avoid
the problem it experienced here. Thus, to use the example of this case, if
forced to make the call in advance, next time IBM may decide that to give itself
adequate “wiggle room” against an overpayment of commissions, it will set de-
ployment quotas at, say, $1.2 million instead of $1 million. The result of such
court-driven caution may thus be that sales executives like Khoury earn less in
commissions than they would have prior to today’s decision. Even more trou-
bling is the prospect that, at least for national customers such as the U.S. Ar-
my (from which the deployment commissions at issue here were generated), a
large company like IBM will simply decide to relocate its sales force to states
which do not undermine its freedom to contract in the way New Hampshire
does under today’s decision. Either of these eventualities seems particularly
ironic in a state whose motto is “Live Free or Die.” I respectfully dissent.
5
The majority professes dismay at the “tone” of the dissent. Understandably, it would prefer
that I describe the folly of its position less bluntly, so that our differences might be described
as a mere academic dispute over some fine point of contract law. Sometimes, however, lest le-
gal rhetoric mask reality, it is necessary to point out that the emperor has no clothes. Unfor-
tunately, this is one of those occasions.
27