Tymshare, Inc. v. Covell

William Covell (plaintiff) worked as a sales representative for Tymshare, Inc. (defendant). Under Covell’s employment agreement, Covell was to receive a base salary plus commissions for sales exceeding an annual sales quota. Tymshare had complete discretion to set Covell’s quota and change it at any time. If Covell was terminated, he was entitled to receive a portion of commissions based on prorated performance against the sales quota. For 1980, Tymshare set an unusually high sales quota for Covell based on a contract with the United States Postal Service that was expected to generate substantial sales. When those sales did not materialize as planned, Tymshare lowered Covell’s quota. A few months later, business picked up, and Covell started making substantially more sales. Because his sales quota remained low, by November Covell was on track to make an unusually high commission for the year. Ordinarily, Tymshare made commission payments to employees on a monthly basis, dividing annual quotas across the months and paying commissions each month for sales exceeding that month’s allocated portion of the quota. However, Tymshare had started withholding Covell’s monthly commissions. When Covell asked why, he was told not to return to work. About a week later, Tymshare told Covell that it had increased his annual quota for the year, with retroactive effect, essentially negating Tymshare’s obligation to pay Covell any additional commissions. A couple of weeks later, Tymshare fired Covell. Covell sued Tymshare, arguing, among other things, that Tymshare breached the employment agreement by exercising its contractual discretion to adjust quotas in bad faith to deprive Covell of previously earned commissions. The district court granted summary judgment in Covell’s favor, and Tymshare appealed.