IBM to Settle Sales Reps Claims for $4.75M

Santa Clara, CAIBM will pay $4.75 million to settle claims that it shortchanged about 1,500 sales representatives out of their rightful commissions, and that Big Blue had violated California Labor Code, according to a preliminary approval motion filed August 23rd in federal court. 

Plaintiffs also claim the global technology company--which sells hardware, software, cloud-based services and cognitive computing --failed to provide written, enforceable contracts that outlined how those commissions are calculated and paid, reported Law360. This settlement resolves allegations that IBM sales representatives were stiffed hundreds of thousands of dollars in commissions after going back on its purported promises—and a written commitment -- that commissions wouldn't be capped.

IBM employee Mark Comin sued Big Blue three years ago for violating California's labor laws. According to Law360, on three occasions Comin wasn’t paid the full commissions amount he was due for closing large transactions. Initially, IBM credited him for more than $3 million in commissions but retroactively reversed 90% of the credit with no explanation. Comin worked at IBM from January 2001 until February 2018

Bait and Switch

IBM was accused of employing a "bait-and-switch" scheme by initially claiming there are no commission caps and enticing its sales reps to exceed their quotas at each sales period, but then later cutting their payouts on big-money deals.

Similar Lawsuits

Comin’s lawsuit joins dozens of similar cases claiming Big Blue stiffs its sales staff. Comin said that several of those cases involved incentive plans for California residents from the last four years. It is one of about 30 lawsuits since 2014 in which IBM has argued its "incentive plan letters" are not enforceable contracts.

IBM Sales Manager Mark Briggs filed a similar lawsuit in August 2021, and it was later consolidated with Comin’s complaint. Briggs, who worked for IBM for almost three decades, also asserts that IBM does not keep its payment commitments.

IBM’s Stand

IBM argues that it does not have a contractual obligation to pay commissions spelled out in written documents provided to its employees. Rather, the tech giant provides its sales reps with different compensation plans that outline sales quotas, and spell out how they will be paid. Those plans typically specify that a salesperson's total compensation will be composed of something like 55 per cent base salary and 45 per cent commission, calculated as a percentage of revenue from sales deals closed.

California Labor Law

California’s labor law is no doubt a thorn in IBM’s side. In 2013, California enacted a law that requires employers to have written contracts with employees who are paid through commissions. Labor Code Section 2751states:

"Whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid."

The Payout

IBM will pay $4.53 million to class members and their counsel, with $10,000 each going to Mark Briggs and Mark Comin, along with $200,000 in Private Attorneys General Act penalties. The filing states that, "Each class member will receive $300…As explained later, the class members include many salespeople whose commissions were never reduced ('capped,' as Plaintiffs claim), meaning that the $300 represents the risk to them of not having an enforceable contract against IBM.

The settlement covers about 1,500 employees who are currently living or lived in California when working for IBM on commissions between Nov. 4, 2015, and the date of preliminary approval of settlement by the court. As well, a subclass of about 60 employees who are living in or lived in California from the same time period whose commissions were improperly capped, are also covered.

The case is Comin and Briggs v. International Business Machines Corporation, case number 3:19-cv-07261, in the U.S. District Court for the Northern District of California.