IBM sued again by its own sales staff: IT giant accused of going back on commission payments promise

When is a contract not a contract? When it's an incentive plan letter

IBM has been sued by sales manager Mark Briggs for allegedly capping sales commission payments despite a written commitment not to do so, joining dozens of cases claiming Big Blue screws its sales staff.

The lawsuit [PDF], filed in a US federal district court in Northern California on Friday, challenges IBM's practice of insisting that it does not have a contractual obligation to pay commissions spelled out in written documents provided to its employees. It is at least the 30th lawsuit since 2014 in which IBM has argued its "incentive plan letters" are not enforceable contracts.

IBM provides its salespeople with different compensation plans that outline sales quotas, and spell out how they will be paid. Those plans typically specify that a salesperson's total compensation will be composed of something like 55 per cent base salary and 45 per cent commission, calculated as a percentage of revenue from sales deals closed.

Each time, IBM’s defense has been the same: IBM owes nothing because the employees do not have an enforceable contract

IBM also provides its employees with individually tailored incentive plan letters (IPLs) for each sales period that cover expected sales quotas, territories, and the rate at which sales commissions will be earned – 20 per cent of sales revenue, for example.

But according to this latest lawsuit and many others, IBM does not keep its payment commitments. Since 2018, the complaint says, Big Blue has successfully argued in court that its IPL is not a contract and it does not have a contractual obligation to pay specified commissions.

As IBM doesn't have any other contract with its California-based salespeople who earn commissions, the company maintains it doesn't have to pay them what it said it would pay them. Predictably, this has prompted sales reps to sue to recover what they contend they're owed.

"Each time, IBM’s defense has been the same: IBM owes nothing because the employees do not have an enforceable contract for the payment of commissions," this latest complaint stated. "IBM claims that the IPL is not an enforceable contract, nor is there any other enforceable contract."

Damn those regulations

The problem for IBM is that in 2013, California enacted a law – Labor Code Section 2751 – that requires employers to have written contracts with employees who are paid through commissions.

The law states, "Whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid."

When this came up in a 2018 sales commission claim, Swafford v. IBM [PDF], the judge hearing the case agreed "that the IPL is not a contract and that the IPL therefore cannot satisfy the requirements of California Labor Code Section 2751."

Yet when the plaintiff in another commission claim, Jerome Beard, sought to use that to establish that IBM had violated California Labor Code, IBM responded by saying the IPL satisfied California law without admitting that the IPL is an enforceable contract or accepting obligations outlined therein. (That case has since settled.)

Matthew Lee, a senior partner at Raleigh, North Carolina law firm Milberg Coleman Bryson Phillips Grossman, told The Register in a phone interview that IBM has maintained it has a contract-that-isn't-a-contract four times in the Northern District of California, and that judges in those cases, including Swafford v. IBM, have rejected those arguments.

"Mark Briggs was Dave Swafford's first line manager," explained Lee, who also represented Swafford. "And when IBM capped Dave Swafford they also capped Mark Briggs. He's another IBM employee who didn't get commissions paid that should have been paid."

The Swafford case was resolved on November 13, 2019 when both sides agreed to dismiss the case. Typically, this means there was a settlement and the Briggs complaint notes that Swafford "resolved his claims to the mutual satisfaction of the parties prior to trial."

The Register asked Lee whether he could say anything about the presumed settlement and he declined, which is consistent with the non-disclosure terms that tend to accompany settlements.

However, Lee, who in April helped win $11m for Scott Kingston, an IBM sales manager fired for backing Jerome Beard and denied sales commission, did say that he expects California courts will resolve the status of IBM's contract-that-isn't-a-contract within a year or so.

"I think sometime probably late next year, we'll know a lot about where the case is going," he said.

IBM did not respond to a request for comment. ®