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Interactive Telecommunications Services, Inc. v. Mil-Comm Products

August 26, 2009


On appeal from Superior Court of New Jersey, Law Division, Morris County, Docket No. L-544-05.

Per curiam.


Submitted May 20, 2009

Before Judges Stern, Payne and Waugh.

Plaintiff, Hilary Thomas, appeals from an amended judgment based on a jury verdict in this case in which she alleged "common law wrongful discharge," "violation of [the] New Jersey Wage Payment Law," "breach of contract," and other claims. The jury found that defendant Mil-Comm Products, Inc. (Mil-Comm), employed Thomas at a salary of $130,000 a year and was indebted to Thomas's consulting company, Interactive Telecommunications Service, Inc. (ITS), in the amount of $45,400, that Thomas's wages were reduced before she was given "notice of the reduction in violation of the Wage Payment Law," that she was discharged because of "her refusal to consent to defendants' violation of the Wage Payment Law," and that she would not have been terminated if she had accepted the salary reduction. While there is no appeal or cross-appeal from the $45,400 award to ITS,*fn1 Thomas claims that the jury award of only $2,190 for "any losses she sustained as a result of her wrongful lost income and nothing for pain and suffering discharge" was improper and that her motion for additur or new trial should have been granted. We affirm the judgment.


Thomas owned ITS, a consulting firm. Mil-Comm distributed lubrication products. It was founded in 1985 by Robert G. Furlong (Robert). Robert was CEO of Mil-Comm until his death in November 2003. Robert's son, defendant R. Gordon Furlong (Gordon), began working for Mil-Comm in 1992 for a salary of $39,000 per year. After the first year, Gordon was promoted to president and chief operating officer and given a ten thousand dollar raise.

In April 1999, Mil-Comm acquired technology rights to manufacture the lubricant from John Scheld who had been "working with" Mil-Comm. Because of the lubricant's usefulness with weapons, the Department of Defense was Mil-Comm's primary customer. When Gordon was promoted to CEO in November 2003, just prior to his father's death, Gordon earned a salary of $73,060.

Prior to Robert's death, Robert and his wife, defendant Frances Furlong (Frances) were equal shareholders. Frances became the sole shareholder after Robert's death. She was a stock broker and not active in the operation of Mil-Comm.

The record reflects that Mil-Comm needed frequent loans to keep it afloat. In 1993, Gordon was Mil-Comm's only full-time employee, and the company's sales were around $34,000. MilComm's sales increased over the years, and its sales were $700,000 for fiscal year 2000, $800,000 for 2001, and $1 million for 2002 and 2003. From July 2003 to July 2004, Mil-Comm's sales dropped to about $700,000, which Gordon attributed to a decision of the military to no longer keep large standing inventories of the product, and in 2004 sales went back up to $1 million. Gordon testified that 2004, the year Thomas was fired, was the first year Mil-Comm ever made a profit. Mil-Comm had nine employees at the time of trial.

Thomas graduated from college in Wales with an environmental studies degree. She began working in the land-use survey field in Wales and moved to Canada in 1967 to teach environmental studies. She quit that job in 1973, took a year off, and returned to London in 1975 to work at another university as a research assistant for the next eighteen months. She thereafter worked as research assistant for a telecommunications consulting company and moved up in that company, eventually becoming vice president, until she left in 1982.

In 1982, Thomas began working as a consultant for a software development company. She became a vice president/managing director in 1984 and moved with the company to the United States. Sometime around 1986, Thomas began working for France Telecom as vice president of marketing. In 1987 she became president of Minitel USA, part of France Telecom. She was replaced in 1992, but remained as a consultant.

Thomas formed ITS in 1992. Originally, France Telecom was ITS's only client, but Thomas later acquired other clients.

In February 1999, Thomas inactivated ITS when she was asked to become an employee of one of her clients, eCharge Corporation, in order to implement a business plan she had written for it. Thomas traveled globally to negotiate agreements between eCharge and other companies, until December 2000 when eCharge "ran out of money" and "closed." In 2000, Thomas did work for I-Said Corporation, another "payment systems kind of company," until that company closed later that year due to "severe financial difficulties." Thomas thereafter was married and tried to find non-profit work, but when she could not find work by 2002, she began "actively looking for work again" in the corporate world. At that time, a friend introduced Thomas to Gordon.

Thomas testified that prior to being employed by Mil-Comm, her salary exceeded $125,000 for "every job" she had since 1990. Thomas clarified, however, that she only had two "jobs" as an employee during that time frame - - France Telecom between 1990 and 1992 and eCharge between 1999 and 2000.

Thomas's relationship with Mil-Comm began in 2002 as a consultant, when Thomas prepared "a three-phase" proposal, which included preparing a business plan to meet the goals of private investment (phase I), preparing a private placement memorandum (phase II), and raising funds and implementing the plan (phase III). Mil-Comm retained ITS in April of 2002 to complete phase I, for $25,000.

Upon completion of phase I, Thomas began phase II. Phase II involved Thomas securing the company's assets and better organizing the company. It is undisputed that Mil-Comm agreed to pay ITS $100 per hour for the phase II work. ITS sent MilComm invoices, totaling $32,500, for October 2002 to December 2002 and Mil-Comm paid the invoices. However, the following year, after Mil-Comm fell behind on the invoices, the parties entered into an agreement whereby Mil-Comm would pay ITS $5,000 bi-weekly and any fees ITS earned over $5,000 were to be carried on the books as debt to ITS.

Gordon testified that while ITS was never guaranteed any amount of work, ITS was billing more than $5,000 per pay period. Thus Mil-Comm was accumulating debt based on the difference between the $5,000 bi-weekly rate and what was actually being billed. Between January 2003 and June 2003, ITS submitted thirteen invoices, totaling $85,425. A statement prepared by ITS showed that on June 30, 2003, Mil-Comm had paid ITS $35,000, and owed $50,425.

Thomas testified that in February 2003, Robert spoke with her about becoming an employee of Mil-Comm. Robert believed it would save the company money, help attract investors by reducing the company's growing debt to ITS, and benefit Mil-Comm by having a non-family member as a senior manager. Thomas testified that she had many conversations with Robert about becoming a full-time employee, as she was at that time already "working much closer to full-time" for Mil-Comm and had no other consulting clients. According to Thomas, she told Robert she was looking for security of at least five to seven years because this was going to be her last job before she was to retire and she was also interested in a "bonus scheme or something of that nature." Thomas indicated that Robert asked her to place her terms in writing, which she did in April of 2003.

Thomas's draft employment agreement included a $73,060 salary, equal to Gordon's salary, in addition to medical benefits, a $409/month car allowance, vacation, bonuses, past due consulting fees, and "2.5% of any investment resulting during [her] tenure, to be taken in equity or cash." Thomas's proposed bonus plan consisted of "1% of gross revenues so long as quarterly target revenue [was] reached," "$1,000 per month on net margin," and "2.5% of net profit for the quarter." The entire proposal totaled $97,059. The second page of Thomas's proposed plan detailed a "Management Compensation Plan" for herself, Gordon, and another senior employee. According to Thomas, Robert rejected the car allowance, because Mil-Comm used to offer one and he was not bringing it back and rejected any bonus scheme based on gross revenue. Thomas testified that she understood this to mean that Robert was "willing to consider a bonus on the net margin." Thomas testified that Robert said he would need to consult with Frances about "the whole concept of the bonus plan for [Thomas] and for Gordon."

According to Thomas, sometime in June 2003, she met with Robert at his home to try to resolve the agreement. Thomas offered Robert a "temporary agreement" where she would work as an employee for the bi-weekly salary of $5,000, but rather than paying it to ITS, Mil-Comm would pay that as a salary to Thomas directly through payroll. In return, Thomas agreed to "freeze the debt and forego any of the additional payments" so that the debt to ITS would "stop growing at the pace it was." Thomas expected all appropriate taxes to be deducted from the $5,000 bi-weekly salary. Thomas testified that she believed Mil-Comm owed ITS around $40,000 at that time, and believed that "ITS would get its money when Mil-Comm could afford to pay it," but the money would remain on the books as a debt. Thomas indicated that Robert thought this "was a very good idea" as a "temporary" arrangement and they would still try to work out a bonus plan for all senior managers, including Thomas and Gordon, over the next few months, and at that time Mil-Comm and Thomas would enter into an employment agreement.

Gordon testified that on June 7, 2003, his parents called him and told him to fire Thomas. However, Gordon indicated that a few weeks later, on June 17, 2003, rather than fire Thomas, he and Thomas made a verbal agreement in his office that Thomas would become an employee of Mil-Comm at an annual salary of $73,060. Gordon also indicated that Thomas never expressly accepted his offer, but because Thomas came to work, Gordon assumed she accepted his offer.

According to Thomas, on June 17, 2003, Thomas was in a meeting with Gordon and he told her that "over my dead body" would she be paid more than the $73,060 he then made. Gordon admitted to saying this to Thomas, and then storming out of the office, but testified that five minutes after he said it, he came back into the office and "closed the deal" with Thomas. Thomas testified that she told Robert about Gordon's "over my dead body" statement and Robert indicated he would "handle Gordon." According to Thomas, she began working for Mil-Comm "as an employee" in July 2003. At that point ITS's consulting work for Mil-Comm ended.

Thomas further testified that between August 2003 and December 2003, she mentioned to Gordon at least twice that she needed an employment agreement and Gordon responded that they were too busy and needed to complete an agreement with John Scheld first. As already noted, Scheld had originally invented and manufactured the lubricant distributed by Mil-Comm. According to Thomas, Robert reported any discussion regarding bonuses would be delayed until investors had been identified, and thus, Thomas had to wait for her employment agreement until there was a stock and/or bonus plan in place.

In November 2003, when Robert died, Frances became the sole owner of Mil-Comm, and Gordon became the CEO. Thomas testified that in January 2004, she spoke to Frances and Gordon about finalizing the employment agreement, and they both responded that they needed to complete an agreement for Scheld first. According to Thomas, she never received an employment agreement. Also in January 2004, Thomas testified that she received a W-2 from Mil-Comm showing that she was an employee from June 23, 2003, until the end of the year.*fn3

Gordon testified that he knew Thomas was having the payroll company deposit her by-weekly paychecks into two separate accounts and believed that Thomas was paying down Mil-Comm's debt to ITS from money she was being paid in excess of her salary of $73,060.

In February 2004, Thomas took a vacation. Thomas testified that when she returned to work on March 16, 2004, Gordon asked to meet with her, with his sister Joan present, and gave Thomas a letter entitled "Clarification of your Compensation and Employment Terms." Both Gordon and Thomas testified to the contents of this letter that Gordon wrote. Gordon indicated that Thomas was hired as an employee in July 2003 at an annual salary of $73,060 and Mil-Comm owed an outstanding debt of $45,400 to ITS. Gordon wrote that since then, Thomas had been receiving $5,000 bi-weekly, amounting to an annual payment of $130,000, and that the amount above Thomas's salary of $73,060 was designed to be credited to reduce the outstanding ITS debt. Gordon indicated that while Thomas was on vacation, he realized that the payments being made to Thomas were not being so allocated. Gordon's ultimatum was essentially that Thomas's salary was $73,060 and she needed "to decide whether [she would] accept [those] terms." Gordon also noted that Thomas was only entitled to two weeks vacation after one year of employment, described acceptable working hours and indicated that working from home was "not authorized." Finally, Gordon said that MilComm would be issuing Thomas a corrected W-2 for 2003, and "taking an adjustment by applying the difference paid against the ITS consulting services amount owed to [Thomas]." Basically, Mil-Comm was going to apply a $2,190 credit to every $5,000 bi-weekly payment Thomas had received since July 2003 against the ITS debt, because $2,190 represented the difference between a salary of $73,060 (a bi-weekly salary of $2,810) and the $130,000 amount Thomas received (as a result of the $5,000 bi-weekly payments).*fn4

After this meeting, Thomas received her March 19 paycheck, which reflected a salary of $73,060.*fn5 This paycheck covered a pay period prior to the March 16, 2004 meeting and the notice Thomas received of the pay adjustment, and she objected to the "retroactive reduction of [her] salary."

On March 22, 2004, Thomas also e-mailed Gordon and Joan, indicating that she did not accept Gordon's proposal and would submit a counter-proposal within a week. In the meantime, Thomas indicated that she would continue working at the same pay rate, and that the actions she took, including ...

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