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Claim for commissions revived over whether contract modification communicated to sales rep; FMLA claims fail

By Nadine E. Roddy, J.D.

Discharged for dishonesty while out on leave, a steel sales rep failed to show that his employer’s proffered reasons for his termination—that he had misled a customer and then lied about it—were pretextual, thus defeating his FMLA and ADA claims, the Tenth Circuit held in a nonprecedential opinion. However, on his state-law breach of contract claim, the salesman raised a material fact issue concerning whether an alleged modification of a contract term had been communicated to him by the employer. Summary judgment for the employer was reversed on the contract claim (Balding v. Sunbelt Steel Texas, Inc., Mar. 13, 2018, Kelly, P., unpublished.).

Fired from “commission sales” job. The terms of the salesman’s compensation were originally set out in an email from the employer’s vice-president of sales as $30,000 a year in base salary plus 1.5% commissions on “total gross sales.” The employer did not pay the employee any commissions, but it did raise his base salary to $40,000 eight months later. The employee’s supervisor at the time claimed that she had informed the employee that the raise was in lieu of commissions, but the employee denied ever having been told this information. In subsequent years, the employee received additional raises to his base salary as well as several bonuses, but never any commissions.

During his employment, the employee suffered from various medical issues of which the employer was aware. One day after experiencing a panic attack at work, the employee informed the employer that his doctor recommended some time off, and the employer told him he could take some leave time. While the employee was out on leave, his supervisor monitored his email and discovered that the employee had repeatedly assured a customer that an order was “in process” and was being “rushed through,” when in fact the order had not been entered into the employer’s system. When asked about this situation, the employee denied having told the customer that the order was in process until the supervisor confronted him with the emails. A short time later the employee was discharged. He sued his former employer, asserting state-law claims for breach of contract and unjust enrichment, as well as federal claims for FMLA retaliation and interference plus ADA violations. The district court granted summary judgment for the employer on all claims.

FMLA and ADA claims. On the FMLA retaliation and ADA claims, the Tenth Circuit upheld the district court’s application of the McDonnell Douglas burden-shifting framework, as well as its conclusion that the employee failed to show a material factual dispute that the employer’s proffered reason for discharging him was pretextual. However, because the burden-shifting framework does not apply to FMLA interference claims, no pretext analysis was necessary on this claim. Instead, summary judgment for an employer is warranted on an interference claim when there is no material factual dispute regarding alternative reasons for termination.

Honest belief. Noting the similarity of the two standards, the court was confident in the district court’s final result. In examining pretext, the relevant inquiry is not whether the employer’s proffered reasons were wise, fair, or correct, but whether the employer honestly believed those reasons and acted in good faith upon those beliefs. Similarly, in considering an employer’s proffered rationale for an adverse employment action that allegedly interfered with an employee’s FMLA leave, what is important is whether the employer took the action because it sincerely, even if mistakenly, believed in the proffered rationale. Based on the record, there was no genuine dispute that the employer honestly believed the employee had misled the customer about the status of the order and then lied about it when confronted.

Further, to the extent the ADA failure-to-accommodate claim concerned pre-discharge conduct, the employee failed to show that he did not receive any accommodation he requested. This failure independently defeated his accommodation claim.

Breach of contract claim. The district court ruled that the employee was precluded from claiming entitlement to the 1.5% commission on his total gross sales specified in his original compensation agreement because he had accepted raises and bonuses for several years and never objected to the employer’s failure to pay him commissions. It reached this conclusion by testing the facts against several principles of Utah law concerning modification of unilateral contracts with implied-in-fact terms. In doing so, the Tenth Circuit held, the district court overlooked an important component of such a modification—whether the employee could only have reasonably believed the employer was extending a new offer based on the new terms.

Implied-in-fact provisions. To find an implied-in-fact provision in a unilateral contract enforceable, Utah law requires the employer to communicate to the employee its intent to offer a new term in a manner sufficiently definite for the employee to reasonably believe the employer is offering that term. In this case, the district court’s focus on the employee’s conduct overlooked the question whether the employer’s offer of a raise—in lieu of commissions—was adequately communicated to the employee, such that the only reasonable inference to be drawn was that the employee must have reasonably believed the employer had made that offer. This material factual dispute, among others, required reversal of summary judgment for the employer on the contract claim.

Unjust enrichment. Although the parties disputed the terms of the employee’s compensation, the court noted that the existence of a valid, enforceable compensation contract between the employer and the employee was undisputed. Under Utah law, the existence of a valid, enforceable contract forecloses relief under a theory of unjust enrichment because the two theories of recovery are inconsistent. Thus, summary judgment for the employer on this claim was proper.