As employers continue to use written employment agreements, a question often arises regarding what discretion, if any, an employer has to adjust the compensation, especially commissions, set forth in the employment agreement. So long as the employment agreement identifies the employment relationship as “at-will,” the employer has complete discretion to adjust the employee’s commission rate, as is demonstrated in the Illinois case of Geary v. Telular Corporation.
Kevin Geary (“Geary”) was employed by Telular Corporation (“Telular”) as a regional sales manager. Shortly after beginning his employment, Geary executed an employment agreement which stated that his employment was at-will. Thereafter, Geary became a part of the Motorola Account Team which was responsible for sales to Motorola, Inc. (“Motorola”). During Geary’s employment, Telular adopted a compensation plan for the Motorola Account Team which modified Geary’s employment agreement to include monthly commissions equal to .5% “of all Motorola revenues generated by the Motorola Account Team.”
Several months after implementing the compensation plan, Telular underwent a reorganization in which the employment of all members of the Motorola Account Team, except Geary, was terminated. Geary was, instead, promoted to director of business development for Motorola. Geary’s compensation as director consisted of a base salary of $65,000 and quarterly commissions based on a percentage of a target sales figure achieved rather than a percentage of revenues generated. Thereafter, Telular paid Geary according to the new compensation plan. While Geary continued his employment, he objected to the modification in his commission rate. Several months later, after his termination, Geary filed suit against Telular, alleging a breach of contract.
In entering judgment in favor of Telular, the court explained that when an employment agreement is terminable at will, the employment agreement may be modified by the employer as a condition of its continuance. The employer’s unilateral right to modify at-will employment terms applies to the compensation provisions, including commissions set forth in the employment agreement. If the at-will employee continues to work after a modification, he is deemed to have accepted the modification to the employment agreement.
Applying the above principles to Geary’s case, the court noted the sales at issue were completed after the modification in his compensation plan. The court held that a sale was complete upon Telular’s receipt of a purchase order from Motorola, which did not occur until after the modification in Geary’s compensation plan. Thus, since Geary had accepted the modification to the prior compensation plan by his continued employment, he was not entitled to the larger commissions allowed by the prior compensation plan.
If you have a question about at-will employment or compensation, including commissions, please telephone a member of the firm.