Class Action Alleges IBM Owes Calif. Sales Reps Unpaid Commissions

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International Business Machines Corporation (IBM) has been hit with a proposed class action lawsuit over its alleged practice of capping sales representatives’ commissions despite representing that the earnings would never be capped.

According to the suit filed on August 27, IBM has maintained that it is not obligated to pay commissions at all given it has no contract with sales reps ensuring the payment of such wages. The case argues that the defendant, therefore, has run afoul of a California Labor Code provision that mandates that employers provide sales reps who earn commissions with an enforceable written contract that specifies how commissions will be computed and paid.

“IBM employs hundreds, if not thousands, of sales representatives and managers throughout California who earn sales commissions,” the complaint states. “However, IBM does not provide those employees with a written, signed, enforceable contract regarding their commissions.”

The lawsuit contends that IBM’s alleged “bait-and-switch” scheme, whereby sales reps are led to believe their commissions will be uncapped only to discover later that IBM routinely pays them less than they earned, is “precisely the type of conduct that the California Labor Code seeks to deter.”

Global technology company IBM employs sales representatives to sell its hardware, software and cloud-based and cognitive computing services, the suit begins. Per the case, IBM offers seven types of commission plans and provides each sales representative at the beginning of each sales period with a “substantially similar, standardized document,” called an incentive plan letter, in which the employees are given “limited information” regarding their sales quota, territory and commissions rate.

According to the lawsuit, the majority of the incentive plan letter is devoted to disclaimers that, prior to the first half of 2018, included a statement indicating that the letter “is not an express or implied contract or a promise by IBM” to pay commissions to the employee.

The case alleges that although IBM has repeatedly represented to employees that sales commissions are uncapped, the defendant has nevertheless “routinely failed” to pay sales reps their full commissions as reflected in their incentive plan letter and “other inputs shown in IBM’s online commissions workplace.” As a result, IBM has been sued over two dozen times by sales representatives and managers who claim to be owed unpaid commissions, the complaint says. In each case, IBM has maintained that it “owes nothing” because it has no enforceable contract with the workers for the payment of commissions, according to the suit.

The case argues that because IBM has “openly admitted” that it does not have an enforceable written contract for the payment of commissions to its sales employees, its commissions program fails to comply with the California Labor Code’s requirement that such a contract be provided. Section 2751 of the California Labor Code, which went into effect on January 1, 2013, is a mandate, the lawsuit stresses, “not some gentle suggestion to employers that causes no harm when it is ignored.”

The plaintiff, a manager who has worked with IBM since 1995, claims to have been financially harmed by the defendant’s alleged failure to pay his direct report’s commissions. The sales rep who reported to the plaintiff allegedly closed two deals for IBM in 2016 with Oracle and Sabre, Inc. that resulted in total sales of upward of $3 million of IBM products and services. As such, the sales rep’s commissions on the deals should have totaled $966,316, the suit says.

Instead, the worker was informed by IBM that the company had capped his commissions at 250 percent because “it was simply too much money” to pay him in full, according to the complaint. Because his report’s commissions were capped, the plaintiff’s commissions were “similarly limited,” the suit says.

While the plaintiff’s direct report filed a lawsuit to recover the unpaid portion of his commissions, his claims were ultimately resolved with IBM, the filing notes. The plaintiff, however, has still not been paid the commissions he claims to be owed for the 2016 deals, according to the complaint.

The plaintiff looks to represent anyone who resided in California while working for IBM on a commissions incentive plan at any time since November 4, 2015. Also proposed is a subclass of those who fit the same criteria and were not paid the amount of commissions reflected in their commissions formula.

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