The New Jersey Appellate Division recently provided helpful guidance on the contours of sales commissions and, as defined under the Wage Payment Law (WPL), “supplementary incentives.”
In a published decision issued June 24, the Court undertook extensive statutory interpretation to conclude that the “special compensation” offered by the plaintiff’s employer fell outside of the WPL. Therefore, the plaintiff could not prosecute her WPL claims.
The Parties and their Dispute
The plaintiff in this case, Rosalyn Musker (Musker), worked as a sales manager for the defendant company, Suuchi, Inc. (Suuchi). Suuchi’s primary business involved operating a proprietary software platform for apparel manufacturers. Suuchi marketed the following: software-as-a-service (SaaS); platform-as-a-service (PaaS); and third-party logistics services (3PL). Suuchi’s revenue largely came from subscriptions to these services, as well as the Annually Recurring Revenue (ARR) derived from these services. Musker earned a base salary of $80,000, and was entitled to receive commissions based on different tiers of sales that she reached.
In March 2020 during the onset of the COVID-19 pandemic, Suuchi entered the personal protective equipment (PPE) market by buying PPE from Chinese suppliers and reselling in the United States. Suuchi advised its salespeople that it would be altering its compensation structure for these sales, paying out commissions on a net, as opposed to gross, basis. The commission would be paid the month after the cash payment for the sale was received.
This was a significant departure from the company’s standard sales commission agreement, which provided a tiered structure of increasing commission rates as sales increased, and required various other conditions to be met for the commission to be paid out. In light of this new venture, Musker was able take part in a transaction where Suuchi sold over $32 million worth of PPE to the State of New York. Musker received $100,000 in commissions as a result of these sales, but contended she was actually owed more than $1.3 million in commissions. Musker subsequently filed suit, alleging violations of the WPL, as well as breach of contract and tortious interference with contractual relationships.
The Trial Court
At the close of discovery, Musker filed for summary judgment as to liability, and Suuchi and the senior executives who had been sued individually moved for dismissal. The trial court agreed with Suuchi and its executives, finding that Musker’s PPE commissions were not “wages” under the statute. The court ruled they were instead “supplementary incentives,” a category of compensation that is expressly excluded from the WPL.
The Appeal
To ascertain whether the compensation at issue qualified as “wages,” the Court broke down the statutory definition of that term into the following three elements:
- “The direct monetary compensation for labor or services rendered by an employee;”
- “Where the amount is determined on a time, task, piece, or commission basis;”
- “Excluding any form of supplementary incentives and bonuses which are calculated independently of regular wages and paid in addition thereto.”
N.J.S.A. 34:11-4.1.
The Court found the first two elements were satisfied in Musker’s case. It concluded that Musker provided her labor to generate the PPE sales and was thereby seeking “direct monetary compensation,” and the sales agreement between Musker and Suuchi promised commissions to be earned by generating sales.
The Court then turned to the last element, whether the compensation at issue would qualify as a “supplementary incentive.” It first noted that because Suuchi had a tiered commission structure where salespeople could earn a higher commission the more they sold, that established that commissions were calculated “independently” from the salesperson’s salary, and was thus “paid in addition” to salaries.
However, “supplementary inventive” is not defined in the statute. To derive its meaning, the Court understood the term to mean “additional compensation or perks that can motivate employees to take action beneficial to the employer, above and beyond the monetary payments directly owed to them for their labor or services.” To give further clarification, additional examples provided were a cash bonus for: perfect attendance at a job, volunteering to share a workspace with another employee, or agreeing to relocate to another office location.
Within this framework, the Court concluded that the commissions offered by Suuchi for PPE sales were not ordinary commissions. First, the terms of the sales commission agreement Musker and Suuchi entered into as part of her sales position did not reference PPE and thus needed to be modified to make PPE sales eligible. PPE sales also did not generate ARR, another requirement in the company agreement. Finally, internal communications in March 2020 from senior executives to salespeople indicated that Suuchi was altering its normal compensation structure to promote sales of PPE. In sum, the Court found that the “special compensation” offered to salespeople were “supplementary incentives” that were “designed to stimulate the salespersons to sell PPE during a time of sudden pandemic-related demand.”
In closing, the Appellate Division emphasized that cases of this sort are fact-intensive and the outcome of this case is not meant to indicate how most of these disputes will be decided. Rather, the Court noted that in many, if not most, of these disputes a “promised commission” will indeed qualify as WPL wages. The Court also emphasized that although Musker can no longer pursue WPL claims, she still was able to pursue her non-statutory contractual claims.
In light of this opinion, employers should carefully consider how the compensation they offer their employees, whether in a sales role or not, would be classified under the New Jersey wage laws.
[View source.]
