Lawrence Westfall v. Brentwood Svc. Grp, Inc. ( 2000 )

IN THE COURT OF APPEALS OF TENNESSEE
AT KNOXVILLE
October 5, 2000 Session
LAWRENCE O. WESTFALL v. BRENTWOOD SERVICE GROUP, INC.
Appeal from the Chancery Court for Bradley County
No. 97-181 Jerri Bryant, Chancellor
FILED NOVEMBER 17, 2000
No. E2000-01086-COA-R3-CV
Lawrence O. Westfall filed suit against his former employer, Brentwood Service Group, Inc.,
seeking payment of post-employment commissions allegedly due him. The defendant
counterclaimed for breach of a non-competition/non-disclosure agreement. Following a bench trial,
the court below awarded post-employment commissions to the plaintiff and dismissed the
defendant’s counterclaim, finding that the parties had not agreed to the non-competition/non-
disclosure agreement. The employer now appeals, claiming that the plaintiff is not entitled to post-
employment commissions and that the trial court erred in failing to enforce the parties’ alleged non-
competition/non-disclosure agreement. We affirm.
Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed; Case Remanded
CHARLES D. SUSANO, JR., J., delivered the opinion of the court, in which HOUSTON M. GODDARD,
P.J., and D. MICHAEL SWINEY , J., joined.
J. Christopher Hall and Jane M. Stahl, Chattanooga, Tennessee, for the appellant, Brentwood Service
Group, Inc.
Marvin Berke, Chattanooga, Tennessee, for the appellee, Lawrence O. Westfall.
OPINION
I.
The defendant, Brentwood Service Group, Inc. (“BSG”), provides payroll funding and
administrative services to the temporary help industry. The plaintiff, Lawrence O. Westfall, went
to work as a salesman for BSG in mid-1992. Westfall’s sole employment responsibility was to
procure customers for BSG. After a customer signed a contract with BSG, Westfall had no more
duties with respect to that client.
On November 30, 1992, Westfall authored a letter detailing his understanding of his
compensation arrangement. The letter states, in pertinent part, as follows:
I am confirming acceptance of the salary/commission structure that
we discussed today. I will receive a $30,000 annual base/draw with
a commission 3/4 of one percent or .75% of gross billings production
the first year for a new company and 1/4 of one percent or .25% of
gross billings production for the second year for that same company.
We will review each quarter against my $30,000 base/draw and at
anytime during any quarter that commision [sic] is earned in excess
of $30,000 annualized or $7500 a quarter, commission will be paid.
The letter, acknowledged and signed by BSG’s president, does not explicitly address what is to occur
in the event Westfall ceases to be employed by BSG.
Westfall’s base pay was subsequently increased from $30,000 to $36,000. It is undisputed
that he remained on the same commission structure, except the parties agree that the $36,000 figure
replaced the lesser figure in all phases of his employment compensation scheme.
Each week, Westfall would receive a check for his base pay, regardless of the commissions
that he had generated. In addition, if his commissions exceeded his base pay, he would receive an
additional check for the commissions. If, on the other hand, the commissions generated by him fell
below the amount of his base check, the difference would be recorded. Westfall would then be
required to make up, by way of new commissions, any accumulated deficit plus the amount of the
current base amount due him before he would be entitled to another commission check. He would
receive his base pay regardless of the amount of his commissions.
Approximately six months after Westfall went to work for the company, BSG asked Westfall
to sign a non-competition/non-disclosure agreement. Westfall made several changes to the
document proffered to him by the company and returned it to BSG. Westfall testified at trial that
John Fanning, then the chairman of Uniforce, the owner of BSG, informed Westfall that the
modifications were not acceptable. The agreement, signed only by Westfall, was apparently placed
in Westfall’s employment file. When Westfall submitted it to BSG, he affixed the words “with
notations as amended” adjacent to his signature.
In January, 1996, BSG informed Westfall that all sales personnel would be responsible for
“one quarter of the loss” in the event a customer’s account resulted in a “write-off.” In response,
Westfall tendered his resignation, but advised that he would work out a 30-day notice. A day or two
after Westfall tendered his resignation, he returned to work to serve out his notice. He began what
he referred to as “weekly maintenance” in BSG’s constantly-changing customer databases. When
Westfall returned from lunch that day, his office was locked and the computer keyboard was
missing. His supervisor suggested that he not serve out his notice and then helped him carry his
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belongings to his car. At the car, Westfall gave a backup tape and a disk containing customer
information to his supervisor. When he returned a few weeks later to pick up his check, he was
asked several questions relating to the customer databases. Westfall initially agreed to allow
representatives of BSG to accompany him to his house to check his personal home computer for
BSG customer information, but refused when BSG declined Westfall’s request to run an errand first.
Apparently, Westfall’s supervisor sent a memo to Fanning detailing why Westfall was told
not to finish serving out his notice. The supervisor was deposed, and portions of his deposition were
read into evidence at trial, but the memo was never made an exhibit to the deposition, and the trial
court refused to accept it into evidence when it was offered by the defendant in connection with its
counterclaim.
Subsequent to his resignation, Westfall went to work for a company that is arguably in
competition with BSG.
Westfall brought suit against BSG seeking payment of his commissions for the two years
following his resignation. BSG counterclaimed for breach of the non-competition/non-disclosure
agreement.
The evidence at trial showed that had Westfall remained in the employment of BSG, his pre-
termination efforts would have resulted in commissions of $33,692.60 for the first year following
his resignation and commissions of $18,633.18 for the second year.
At a bench trial, the court below (1) found Westfall’s base pay to be a “draw against
commissions” which “were earned when the client was signed up;” (2) awarded Westfall a judgment
in the amount of $52,325.78; (3) dismissed BSG’s counterclaim, finding that the non-
competition/non-disclosure agreement “was an offer that was rejected and a counteroffer” which
BSG did not accept; and (4) that there was “no proof that there is any information missing from the
database or that [Westfall] was the one who wrongfully deleted any information.”
BSG appeals, arguing that the trial court (1) erred in awarding Westfall post-resignation
commissions; (2) erred in finding that the non-competition/non-disclosure agreement was never
agreed to; and (3) erred in excluding BSG’s memo relating to its reason for not allowing Westfall
to work out a 30-day notice.
II.
In this non-jury case, our review is de novo upon the record, with a presumption of
correctness as to the trial court’s factual determinations, unless the evidence preponderates against
them. Tenn. R. App. P. 13(d); Wright v. City of Knoxville, 898 S.W.2d 177, 181 (Tenn. 1995);
Union Carbide Corp. v. Huddleston, 854 S.W.2d 87, 91 (Tenn. 1993). The trial court’s conclusions
of law, however, are reviewed de novo with no presumption of correctness. Campbell v. Florida
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Steel Corp., 919 S.W.2d 26, 35 (Tenn. 1996); Presley v. Bennett, 860 S.W.2d 857, 859 (Tenn.
1993).
III.
A.
BSG first argues that the trial court erred in awarding Westfall post-resignation commissions.
We believe applicable contract law supports the trial court’s judgment.
The goal of contract interpretation is to ascertain the intent of the parties according to the
usual, natural, and ordinary meaning of the words used by the parties. Guiliano v. Cleo, Inc., 995
S.W.2d 88, 95 (Tenn. 1999). “The interpretation placed upon a contract by the parties thereto, as
shown by their acts, will be adopted by the court.” Hamblen County v. City of Morristown, 656
S.W.2d 331, 335 (Tenn. 1983). Interpretation of a contract, being a matter of law, is subject to a
de novo review on appeal with no presumption of correctness. Guiliano, 995 S.W.2d at 95.
The parties’ arguments concerning the payment of post-employment commissions rest on
their respective and competing characterizations of Westfall’s base pay. BSG asserts that Westfall’s
base pay of $36,000 was “salary,” while Westfall contends that his base pay was an “advance,” or
“draw,” against commissions. Because of the way the parties operated under their agreement, we
find that his base pay was a draw against commissions.
The agreement refers to Westfall’s base pay at one place in the document as
“salary/commission” and at two other places as a “base/draw.” That being said, we find and hold
that the parties treated Westfall’s base pay not as salary, but as a draw or advance against
commissions. Under clear precedent, see Hamblen County, 656 S.W.2d at 335, we adopt the
parties’ interpretation of the nature of Westfall’s base pay as evidenced “by their acts.” Id. Westfall
testified that he received a check for his base pay each week. If his commissions exceeded the
amount of his base pay, he would receive an additional check for his commissions. If, however, his
commissions fell below his base pay, a deficit would be recorded and carried forward to the next pay
period. Though Westfall would receive another check for his base pay the next pay period, he would
not qualify for a commission check unless and until he made up the cumulative deficit.
Significantly, BSG’s controller testified to the same compensation scheme. We therefore find that
Westfall’s base pay was not a salary, but rather an advance against commissions.
With respect to the more specific question of whether the trial court erred in awarding
Westfall post-employment commissions, we find that this question is controlled by the language of
the agreement and our decision in Winkler v. Fleetline Products, Inc., 859 S.W.2d 340 (Tenn. Ct.
App. 1993). In Winkler, the plaintiff sued his former employer to recover post-termination
commissions. Id. at 340-41. The parties had orally agreed that the plaintiff would procure
customers for the defendant and that the defendant would pay, after the customers paid the
defendant, a 10% commission to the plaintiff on work the defendant performed for these customers.
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Id. at 341. The parties operated under this arrangement for approximately a year and a half, until
the defendant terminated the plaintiff. Id. The record reflected that the defendant’s motivation for
terminating the agreement was that it was satisfied with the amount of business it had and with its
ability to service the existing accounts, and therefore, “saw no reason to continue to pay out 10%
commission on a regular basis to plaintiff.” Id. at 343. We awarded the plaintiff commissions on
orders placed after his termination by customers he procured for the defendant prior to his
termination. Id.Westfall, like the plaintiff in Winkler, was to receive his commissions after the customers
he procured for BSG paid his employer. Nowhere does the agreement relieve BSG of its obligation
to pay Westfall these commissions upon Westfall’s resignation. We find and hold that, because there
was no explicit or implicit agreement to the contrary, BSG is obligated to pay Westfall his post-
employment commissions pursuant to the unconditionally-stated language of the contract. Winkler
supports this result.
BSG attempts to distinguish Winkler, asserting that its rationale -- that an employer should
not be allowed, in bad faith, to obtain for itself the full benefits of a salesperson’s labor without
paying the latter’s commissions -- is not applicable to a case where, as here, an employee voluntarily
resigns. In support of this argument, BSG cites us to Pacesetter Properties, Inc. v. Hardaway, 635
S.W.2d 382 (Tenn. Ct. App. 1981), a case in which, according to BSG’s argument, the plaintiff’s
resignation operated to deny him entitlement to post-employment commissions. Pacesetter,
however, did not involve the question of whether the parties had an agreement as to the payment of
post-employment commissions. Rather, the question at issue in that case was whether the plaintiff
was the procuring cause of the transaction which was consummated after his resignation. Id. at 385.
We found for the defendant, not because the plaintiff’s employment ended due to resignation rather
than termination, but because the transaction for which the plaintiff claimed entitlement to a
commission was due to new, independent negotiations rather than the result of the plaintiff’s efforts.
See id. at 389.
Nowhere in the parties’ agreement is there any indication that resignation invalidates the
defendant’s obligation to pay commissions, an obligation which, as we have previously pointed out,
is stated in unconditional terms in the writing before us. The agreement says simply that Westfall
is to be paid commissions for two years on customers he procured for BSG. It does not provide that
BSG’s obligation to pay these commissions to Westfall ceases to exist upon Westfall’s termination,
voluntary or otherwise. Westfall’s job was to “sign-up” customers, i.e., persuade them to enter into
a contractual relationship with BSG. That he received his commissions over time does not change
the fact that they were earned at the time of the execution of the customer-BSG contract. Because
they were already earned, it is immaterial under the agreement whether Westfall’s employment was
terminated at his initiation or at BSG’s.
BSG next argues that the trial court erred in awarding post-employment commissions to
Westfall because Westfall “was paid a base salary regardless of what he generated in sales, and
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because commissions which he might have earned in each of the two years he claims [BSG] owes
him fell below his base salary threshold of [$36,000] a year.”
This argument, again, improperly characterizes Westfall’s base pay as salary. Because we
have found that it is properly characterized as an advance against commissions, the argument must
fail. Upon resigning, Westfall gave up his entitlement to a weekly pay check. Expanding on this
thought, the proof is clear that he was no longer entitled to a regular paycheck of a guaranteed
amount with the risk of his commissions falling below his base pay being on BSG. His resignation
did not, however, deprive him of that which he had already earned, i.e., his actual commissions.
For the foregoing reasons, we find and hold that the trial court did not err in awarding post-
employment commissions to Westfall.
B.
BSG next argues that the trial court erred in finding that the non-competition/non-disclosure
agreement was not the agreement of the parties. More specifically, it argues that its placement of
the modified agreement into Westfall’s employment file, coupled with its retention of Westfall as
an employee, constituted an acceptance of Westfall’s counteroffer.
“Under general principles of contract law, a contract must result from a meeting of the minds
of the parties in mutual assent to the terms.” Sweeten v. Trade Envelopes, Inc., 938 S.W.2d 383,
386 (Tenn. 1996) (internal quotations omitted). Acceptance of an offer must be exactly and
precisely in accord with the terms of the offer. Ray v. Thomas, 232 S.W.2d 32, 35 (Tenn. 1950).
If an offeree assents to an offer, but only with conditions or with varied terms, there is no acceptance,
but rather the expression constitutes a rejection of the original offer and initiation of a new offer.
See Tullahoma Concrete Pipe Co. v. T.E. Gillespie Constr. Co., 405 S.W.2d 657, 665 (Tenn. Ct.
App. 1966) (“Where a person offers to do a definite thing, and another accepts conditionally or
introduces a new term into the acceptance, his answer is either a mere expression of willingness to
treat, or it is a counter proposal, and in neither case is there an agreement.”) (quoting Canton Cotton
Nills v. Bowman Overall Co., 149 Tenn. 18, 31, 257 S.W. 398,402 (1924)). Moreover, silence or
inaction generally does not constitute acceptance of an offer, unless the circumstances indicate that
such an inference of assent is warranted. Smith v. Murray, 311 S.W.2d 591, 595 (Tenn. 1958).
We find that the trial court did not err in finding the non-competition/non-disclosure
agreement to be unenforceable. BSG’s tender of the typewritten agreement to Westfall constituted
an offer. Westfall, by modifying the agreement, rejected the initial offer and made a counteroffer.
Westfall testified at trial that he was told that the modifications were unacceptable. We are of the
opinion that the circumstances were not such that BSG’s silence and inaction creates a reasonable
inference of assent, and we therefore hold that the trial court did not err in finding the “agreement”
unenforceable.
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C.
Finally, BSG argues that the trial court erred in excluding from evidence the memo relating
to events allegedly occurring immediately after Westfall’s resignation. This issue relates to BSG’s
counterclaim alleging that Westfall breached the non-competition/non-disclosure agreement.
Because we have found that there is no such agreement, there can be no breach, and this issue is
therefore rendered moot.
IV.
The judgment of the trial court is affirmed. This case is remanded for enforcement of the
trial court’s judgment and for collection of costs assessed below, all pursuant to applicable law.
Costs on appeal are taxed to the appellant.
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CHARLES D. SUSANO, JR., JUDGE
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