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Wednesday, January 13, 2010

Compensation Plan Disclaimer Critical

By: Tommy Eden, Attorney

In Henry Vega v. T-Mobile USA Inc., the 11th U.S. Circuit Court of Appeals overturned the District Court’s certification of a class action by an employee who claimed that his T-Mobile failed to pay commissions owed and gained unjust profits as a result. Henry Vega was a Miami retail sales representative for T-Mobile USA Inc. and his compensation was subject to guidelines described in T-Mobile’s 2004 Sales Incentive Compensation Program. When he received a copy of the plan he signed an acknowledgment indicating that he had read and understood it. The Plan stated that Commissions were paid in advance against anticipated earnings in the future, and that they were not actually earned until the expiration of a 180-day charge back window. If a customer deactivated his account within the 180-day window, the commission for that account would not be earned by the sales representative and would be revoked by the company. The front cover of the written compensation plan stated in prominent language that the document “could not be read to create any express or implied contract or promise.”

In January 2004, T-Mobile instituted a new “business rule” which had the effect of negating commissions for a number of sales by Vega and other representatives. Vega filed suit alleging failure to pay wages and unjust enrichment. After discovery, the District Court granted Vega’s motion for class certification and certified the case for trial as a class action. T-Mobile appealed the class certification decision to the 11th Circuit.

The 11th Circuit vacated the order holding that that in light of the express disclaimer the 2004 compensation plan could not constitute a contract in the first place acknowledged in writing by Vega, stating that nothing in the document could be read to create an express or implied contract or promise. The case was remanded to the district court to proceed to trial on Vega’s individual claims.

Common Sense Counsel: In Alabama compensation plans and policies can be interpreted to form contractual obligations. By including a disclaimer expressly stating that the plan or policy or handbook is merely a guideline that can be changed at any time at the company’s exclusive discretion, and that no contract is intended or created, the court will find that no contract is created. A written acknowledgment of the disclaimer can make it even easier to dispose of a breach of contract claim.

Tommy Eden is a Lee County native, an attorney with the local office of Constangy, Brooks & Smith, LLP and a member of the ABA Section of Labor and Employment Law and serves on the Board of Directors for the East Alabama SHRM Chapter. He can be contacted at or 334-246-2901. Blog at