As we recently discussed, while the FLSA does not regulate the payment of incentive compensation (such as, for example, commissions and bonuses), many state laws do. In Nebraska, an employee’s right to commissions is governed by a recently amended statute, Nebraska Revised Statute § 48-1229(4). A new decision from that state’s highest court addresses an employer and employee’s shared freedom to contract within the parameters set by the statute. Coffey v. Planet Group, Inc., 287 Neb. 834 (Neb. 2014).
In Coffey, plaintiff salesperson signed a compensation plan setting forth the parameters for earning commissions. Under the plan commissions were “deemed ‘earned’ when a contract has been signed by the customer and the down payment under the contract has been received.” Coffey’s claimed additional commissions were due to him post-termination for four projects which were at various stages of the sales process at the time of his termination, but for which the criteria in the compensation plan were not met. He sued claiming entitlement under the Nebraska statute commissions for all four projects (one of which was not covered by the compensation plan, but by a separate, project-specific plan), claiming that for each there were “orders on file” and that the defendant had terminated him in bad faith, breaching the implied covenant of good faith and fair dealing.
The trial court found summary judgment on the bad faith claim based on Coffey’s at-will employment and the absence of evidence of bad faith or a “public policy violation,” and also granted summary judgment as to the projects governed by the compensation plan where there was no signed contract in place at time of termination. On appeal the Supreme Court upheld the latter ruling and the employer’s position that the contractual provision did not violate § 1229’s requirement that “wages includes commissions on all orders delivered and all orders on file at the time of separation” unless the parties had “specifically agreed otherwise through a contract,” because the compensation plan constituted such a contract. The Court found that the “plain meaning” of the provision was that “an employer and employee can contractually agree to define when the commission becomes earned as a wage.” Thus, the trial court’s ruling was not in error.
“Coffey is a victory for employers, but not a surprising one, as the defendant did exactly what the revised statute requires: it unambiguously defined when a commission became earned through a contract, which the parties entered into timely,” observed Jackson Lewis Omaha-based Shareholder Christopher Hoyme. “In Nebraska, as in many other states, the key takeaway remains that an unambiguously drafted contract governing incentive compensation is enforceable as drafted.”
Whether governed by Nebraska, Illinois or New York law, businesses must review incentive compensation agreements for compliance with state law and clarity.