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Nolan v. Control Data Corp.

Decided: August 22, 1990.

CHARLES W. NOLAN, PLAINTIFF-APPELLANT, CROSS-RESPONDENT,
v.
CONTROL DATA CORPORATION, A FOREIGN CORPORATION, DEFENDANT-RESPONDENT, CROSS-APPELLANT



On appeal from the Superior Court of New Jersey, Law Division, Monmouth County.

King, Shebell and Keefe. The opinion of the court was delivered by King, P.J.A.D.

King

[243 NJSuper Page 421] This case concerns the interpretation of the compensation terms of an employment contract for a salesman of defendant Control Data Corporation (CDC), a computer company. The written contract gave the employer the absolute and unfettered power to alter sales quotas and thereby compensation rates retroactively, currently or prospectively without notice and presumably without reason. We hold that this absolute and unfettered power in the contract must be exercised in good

faith and for legitimate business reasons so as not to deprive an employee of the fairly agreed benefits of his labors.

Plaintiff appeals from an adverse verdict after a nonjury trial in his suit for damages under the compensation agreement. Plaintiff was a computer salesman for defendant from 1982 to 1985. He claims that (1) the compensation agreement was subject to an implied obligation of good faith and fair dealing on the part of his employer, (2) he was "short-changed" or defrauded under the express terms of his 1985 compensation agreement, and (3) his acceptance of a "final settlement" offered by CDC in 1985 was not an accord and satisfaction. Defendant CDC cross-appeals from the dismissal of its counterclaim which sought return of certain allegedly unearned advances to plaintiff. This published portion of our opinion relates to the claims for 1983 and 1984 only which involve the employer's right to alter sales quotas retroactively.

In May 1986 plaintiff sued CDC for money damages for alleged breach of contract and tortious conduct. Nolan claimed that CDC failed to properly compensate him for services performed as a salesman between 1983 and 1985. After the four-day nonjury trial, the judge dismissed both the complaint and the counterclaim. Nolan moved for a new trial and for amendment of the judgment. The judge denied the motion for new trial but amended the judgment to provide for his recovery of $2,793.73. As noted, both parties appeal.

This claim involves Nolan's right to compensation under a series of employment contracts in effect from 1983 to 1985. Nolan began his career with defendant CDC in February 1982. During 1982, Nolan was first employed as a part-time sales trainee and, eventually, became a full-time "Associate Marketing Representative" in CDC's Division of "Business Information Services" (BIS). This Division of CDC marketed computer timesharing services. BIS had offices in most major American cities. During 1982, Nolan was compensated by salary paid on an hourly basis.

In January 1983 Nolan continued in his position as an "Associate Marketing Representative." At that time, however, Nolan was removed from a "salary only" position and placed on a quota-based compensation plan. Nolan testified that he understood "fundamentally" how he would be compensated under this new plan. He explained:

Prior to January 1, 1983 a discussion with a marketing manager that had been assigned to me in which discussion it was or became known to me that sometime in early 1983 I would be presented with a sales plan developed by B.I.S. and that I would be expected to sign off on this plan and that I would be compensated according to provisions of the plan.

Early in 1983 Nolan attended a meeting during which the "key provisions" of the sales plan were discussed. Shortly after that meeting, Nolan's "Marketing Manager" presented him with a copy of the sales plan. He asked Nolan to review and sign it. He did.

The 1983 sales plan described the duties of a marketing representative and provided for three elements of compensation: salary, incentive compensation and bonus. The compensation scheme described in the plan was extraordinarily complex. Significant to the present action are three clauses contained in the plan which provide:

A. 4. Quota

A yearly quota, subject to change by Control Data, shall be established for each Territory;

C. 10. Revisions

At any time and without notice, revisions may be made to the Plan both prospectively and retroactively;

D. 8.b. Rights Reserved to Control Data

Control Data reserves the right without notice to:

make any retroactive, current and/or prospective adjustments or revisions to salaries, bonuses, incentive compensation levels, quotas, Territories, or any other matters affecting an Employee's employment.

Accompanying the sales plan was a letter which read:

I hereby acknowledge receipt and acceptance of the Amendment to the Control Data Business Information Services 1983 Sales Representatives' Compensation Plan (the "Plan").

I acknowledge that I have read and understand the Plan, including all of its administrative provisions. Furthermore, in consideration of my employment during 1983 by Control Data Corporation, I agree to comply with all provisions of the Plan and I specifically acknowledge my understanding and agreement with the provisions of Section D, Item 3 [Termination], of this Plan.

I understand that Control Data Corporation reserves the right to cancel, change or modify, both retroactively and/or prospectively, any and all portions of the Plan or any amendments thereto, at any time without notice.

Nolan testified that he understood and signed this acknowledgement.

According to CDC, the "unique mission" of Nolan's particular "marketing group," called the "AT & T" group, made appropriate yearly compensation inherently difficult to calculate in advance. The AT & T group's primary responsibility was marketing CDC's services to AT & T. William Friend, BIS' manager of National Accounts and Sales Support Services, explained that while other BIS sales groups concentrated on selling CDC's proprietary computer languages, the AT & T group sold problem-solving computer packages written in the "BASIC" computer language which CDC did not own. After CDC developed the appropriate problem-solving computer applications, AT & T would "bring it in-house." Thus, the AT & T group generated revenue notably characterized by peaks and valleys. According to Friend, the "spiky revenue" produced by the AT & T group, along with other distinctive characteristics of the group ___ such as the existence of a "very large support organization" ___ was the reason it was so difficult to fairly compensate those within that group. Friend said that the reason for manipulating sales quotas was to fairly compensate employees and that quotas were decreased far more frequently than they were increased. The quota in effect at the calendar year's end determined the compensation that an employee ultimately received.

By memorandum dated July 11, 1983 Nolan's quota under the 1983 sales plan was initially set at $1,000,000. This memorandum cautioned that "[g]iven the size and complexity of [Nolan's] territory . . . exceptions and changes are possible. Therefore,

we will discuss each situation as it occurs." By memorandum of August 23, 1983 Nolan was advised that his 1983 sales quota had been increased to $1,075,000. Nolan acknowledges that he received this memorandum and, in addition, discussed the increase in his quota with his Marketing Manager. In October 1983 Nolan's sales quota was reduced to $1,050,000. Nolan testified that this reduction was in appreciation of his good work. In November 1983 Nolan was promoted to "Marketing Representative" and received a salary increase. Nolan claims that he exceeded the $1,050,000 quota finally established for 1983 and was paid a total of $41,439. Nolan alleges that his 1983 compensation was deficient by $5,298.45. He states that he has no dispute over the salary component of the 1983 sales plan ($18,964) which he received and accepted. Rather, Nolan urges that he was improperly denied "incentive compensation" and "bonus." Nolan's claim is premised upon his view that CDC could not manipulate his sales quota other than in "good faith" and that the 1983 quota increase was not made in "good faith."

In 1984 Nolan continued to work for CDC's AT & T sales group. Nolan's compensation was governed by CDC's 1984 sales representatives' compensation plan. Again, the plan provided for three elements of compensation comprised of salary, incentive compensation and bonus. There is no dispute over the salary component of the plan. The 1984 sales plan, like its predecessor, contained a provision which provided:

I understand that Control Data Corporation reserves the right to cancel, change or modify, both retroactively and/or prospectively, any and all portions of the Plan or any amendments thereto, at any time without notice.

Nolan testified that he understood and signed this provision. The 1984 sales plan, also like its predecessor, provided that "[a] yearly quota, subject to change by Control Data, shall be established for each territory" and reserved to CDC the right to "make any retroactive, current and/prospective adjustments or revisions to salaries, bonuses, incentive ...


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