Court of Appeal: Advanced Commissions May Be Recovered

Verizon paid certain employees on commission. The commissions were paid on wireless subscriptions.  However, if customers canceled their service, Verizon would charge back the commissions that were advanced to employees under the assumption that the customer would pay for the entire subscription. Here is the court of appeal's description of the commission plan:

The compensation plans explain that commissions on the sale of cell phone service plans are paid in advance, but not earned until the expiration of a chargeback period during which the customer may cancel the service. The 2004 compensation plan stated: "Customer retention is an important element of earning any commission; therefore your commission for sales of service is not earned until after the expiration of the applicable chargeback period. However, as a benefit to employees so that they will have use of the money before it is actually earned, Verizon Wireless has a policy of advancing commission dollars, if certain requirements are met, for the sale of commission-eligible services." The 2005 compensation plan stated: "Your commission . . . is not earned and the sale does not „vest‟ until . . . your customer satisfies his [or her] contract during the applicable chargeback period."

The compensation plans include a section entitled, "Chargeback of Commission Advance." The 2004 compensation plan stated: "In the event a customer disconnects service during the commission chargeback period, your commission is subject to adjustment by the original amount advanced for the sale. Your commission advance will be adjusted to account for disconnects within the chargeback period . . . ." The 2005 compensation plan stated if a customer disconnects service during the chargeback period, "the sale is not considered vested[.]"

Deleon, a Verizon employee, brought a class action agianst Verizon, challening Verizon's right to recover advanced commissions. Deleon's point apparently is that he sold the plan to the customer. If the customer makes a return or cancels, Verizon must pay him the commission anyway and absorb the loss.  That's why there's little chance there will be a company called "Deleon Wireless" any time soon.

There is no allegation that Verizon failed to honor its plan, or that Deleon was underpaid. The entire focus was that he should be paid more, on sales that did not bear fruit.

Nice try. The trial court granted summary judgment, and the court of appeal affirmed. The courts decided that Verizon's plan was clear, Deleon had notice of it, and Verizon followed the plan correctly. The plan defined when commissions were "earned" and paid money in advance, but reconciled the advances against future earned commissions. Therefore, the courts held, Verizon's plan was lawful.

The court of appeal also made a refreshing observation.  If the plaintiff's argument prevailed, Verizon most likely would have dispensed with making advances. Employees would then have to wait up to a year to "earn" commissions when the subscriptions were fully paid. 

The case is Deleon v. Verizon Wireless, LLC, and the opinion is here.