International Business Machines Corp. v. Gary Joseph Khoury
177 A.3d 724
| N.H. | 2017Background
- Khoury, an IBM federal sales rep (hired 2013), accepted a July–Dec 2014 Incentive Plan Letter (IPL) that paid primary (sales) and secondary (deployment) commissions and required acceptance to participate in a pilot program.
- The IPL contained prominent disclaimers stating it was not a contract and reserved IBM’s right to modify or cancel the IPL "up until any related payments have been earned," defined as "after the measurement of complete business results following the end of the full-[IPL] period."
- Khoury met the original deployment quota (listed as $571,000) and IBM informed him he was owed about $154,124; he received advances and later a partial payment after IBM retroactively changed quotas to $1,000,000.
- Khoury filed a wage claim with the NH DOL; the DOL and the Superior Court found IBM violated RSA chapter 275 and Lab 803.03(c) by changing the quota without prior notice.
- The trial court held the IPL created a default contractual scheme that ripened into enforceable commission rights once business results were "measured" (held to be ministerial accounting) on Jan 15, 2015; IBM appealed.
- The NH Supreme Court affirmed: it held the IPL was an enforceable contract that vested Khoury’s commission when business results were measured and that IBM’s retroactive quota change after that measurement breached the IPL; the court also upheld interest and attorney’s fees awards.
Issues
| Issue | Plaintiff's Argument (Khoury) | Defendant's Argument (IBM) | Held |
|---|---|---|---|
| Whether the IPL was an enforceable contract | IPL terms (formula, acceptance, earned-pay language) created an offer, acceptance, consideration and meeting of minds | IPL disclaimer (“does not constitute … a contract”) and reservation of modification rights prevent contractual obligation | Held: IPL was a contract that granted earned-commission rights once business results were measured |
| When commissions become "earned" under the IPL | "Earned" occurs after measurement of complete business results (ministerial accounting); measurement was complete by Jan 15, 2015 | "Measurement" includes IBM’s retrospective assessment period, allowing post-measurement adjustments | Held: "Measurement" means ascertainment of results (ministerial); IBM lost modification right after measurement; IBM’s retroactive change breached the IPL |
| Whether IBM complied with RSA 275:49 and Lab 803.03(c) (written notice of rate of pay/change) | IBM failed to notify Khoury of the quota change prior to its effectiveness, violating statute/regulation | IPL was not wages or set rate until earned; or statute/regulation didn’t apply to this IPL | Court: because commissions were earned under IPL terms, court affirmed wage award; did not reach statutory violation necessity but held reading supports employee protection |
| Award of statutory interest and attorney’s fees | Khoury sought interest and fees under RSA 275; fees for DOL proceedings included | IBM argued fees limited to superior court action only, and no wages owed so no interest | Held: Interest affirmed; trial court reasonably read RSA 275:53 to allow fees for the full "action" including DOL proceedings; fees affirmed |
Key Cases Cited
- Chisholm v. Ultima Nashua Indus. Corp., 834 A.2d 221 (N.H. 2003) (elements of contract formation: offer, acceptance, consideration)
- Demers Agency v. Widney, 927 A.2d 1226 (N.H. 2007) (bonus is wages when part of agreed compensation and employee completed triggering duties)
- Galloway v. Chicago-Soft, Ltd., 713 A.2d 982 (N.H. 1998) (commission generally earned when order accepted; parties may contract otherwise)
- Trombly v. Blue Cross/Blue Shield, 423 A.2d 980 (N.H. 1980) (ambiguities in insurance contracts construed to benefit insured; analogy for construing employee notices)
- Walsh v. Zurich Am. Ins. Co., 853 F.3d 1 (1st Cir. 2017) (plan language granting employer broad discretion may preclude vested entitlement; discretion subject to implied good-faith limits)