On June 30, 2015, the U.S. Court of Appeals for the 7th Circuit reversed a 1.5 million dollar jury verdict in favor of a high-end computer system salesman, who filed a lawsuit against his employer alleging that it breached his employment contract by failing to pay his commission on a seven-figure sale. Lawson v. Sun Microsystems, Inc., Nos. 13-1502 & 13-1503 (7th Cir. June 30, 2015). The salesman’s compensation package included a base salary and commissions under the employer’s annual incentive plan. After a trial, the jury found in his favor and awarded him 1.5 million in damages. The company appealed. The 7th Circuit held that the sale in question did not qualify for a commission under the terms of the incentive plan.
A commission is not earned under the incentive plan unless the sale meets all eligibility requirements by the end of the plan year. The plan documents provided that the incentive plan would remain in effect until superseded by a new plan, but a plan amendment created a definite termination date for the plan year. The 7th Circuit concluded that since the sale was not finalized and invoiced until after the termination date, the employer is entitled to judgment as a matter of law. The unambiguous terms of the compensation agreement and incentive plan established the criterion for a commission, which was not met. It should be noted that this appeal was not decided under Illinois law, which reads the implied covenant of good faith and fair dealing into all Illinois contracts, including employment agreements compensation plans.