Simple “Discretion” in a Commission Plan Insufficient

A simple discretionary clause in a commission plan does not disqualify earned commissions from protection of the Wage Act. Prudential Insurance offered commissions to its sales employees under a commission plan. Prudential retained the discretion to interpret and administer the plan, and to deny earned commissions to those employees Prudential terminated for cause, including poor performance.

Prudential terminated Mr. McAleer on July 24, 2009, with a number of his pipeline sales already complete and awaiting payment to him. But Prudential’s commission payment system often delayed payout for several months after the fact. Yet the delay was not at issue here, as Prudential declined to pay McAleer any of the earned sums at all. Prudential argued that because it retained some discretion to interpret and administer the plan, Mr. McAleer’s commissions could never be definitely determined and actually due.

But the Court saw through Prudential’s ruse. “Discretion prevents commissions from being definitely determined if the employer is under no obligation to award them,” the Court ruled. Prudential’s plan did not afford the employer carte blanche to do as it pleased, modifying or withholding commission payments as it saw fit. Rather, the plan simply afforded Prudential discretion to make factual determinations, eligibility and calculations. The court found that level of discretion insufficient to strip its employees of their earned wages, and thus the Wage Act would protect Mr. McAleer’s earnings.

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