First Circuit Finds Commission Plan's Windfall Provision Permissible Under Massachusetts Wage Act

In Klauber v. VMWare, the First Circuit upheld an employer's use of a provision in its compensation plan that allowed it to modify commissions on certain large or atypical sales. These "windfall" clauses are common in sales commission plans, and the First Circuit's decision affirms that employers may continue to use them without violating the Massachusetts Wage Act, which otherwise would invite the prospect of paying treble damages on disputed incentive compensation earnings.

The plaintiff in Klauber was a salesperson for software firm VMWare. He was paid a salary plus sales commissions. The plaintiff's eligibility for commissions was governed by VMWare's "terms and conditions," which defined commissions as earned once three requirements had been satisfied. First, the employee had to accept the compensation plan. Second, the employee had to have eligible quota achievement. Finally, VMWare had to conduct a "plan reconciliation," which included a "review of any