National Class Certified in Suit Over Employee Bonuses

A Philadelphia judge has certified a national class of potentially 1,200 people who worked for a medical software company in 1998 and whose incentive-based bonuses for that year were cut by 30 percent -- the equivalent of $12 million to $15 million. The lawsuit is a breach of contract dispute in which Siemens Medical Solutions claims that its senior management had a right to reduce the employee bonuses, called "incentive compensation plans," at any time.

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A Philadelphia judge has certified a national class of potentially 1,200 people who worked for a Malvern, Pa.-based medical software company in 1998 and whose incentive-based bonuses for that year were cut by 30 percent — the equivalent of $12 million to $15 million. The lawsuit, Street v. Siemens Medical Solutions Health Services Corp., is a breach of contract dispute in which Siemens Medical Solutions claims that its senior management had a right to reduce the employee bonuses, called “incentive compensation plans,” at any time. Representing the class is plaintiff Janet Street, who worked for the corporation’s sales division from 1983 to 2001 at their Malvern headquarters. In court records, Street contends that under Pennsylvania contract law, the 30 percent across-the-board reduction of hers and others’ 1998 bonuses had no basis in any contract language. Therefore, each member of the class — potentially 1,200 employees who received the bonuses on top of their 1998 base salaries — is entitled to get the amount Siemens calculated prior to the 30 percent cut, she argues. The employees found out about the reduction after the end of 1998 but before any of the bonuses were paid, said Steven A. Schwartz, one of the lawyers representing the class. Common Pleas Judge Mark I. Bernstein, who certified the class last week, found the plaintiff had presented sufficient evidence to satisfy Pennsylvania’s requirements for class certification, noting that the issues in the case “may be suitable for summary judgment disposition since there are virtually no disputed facts.” Siemens says it was entitled to make the reduction in the way that it did, and it filed a motion for summary judgment on this argument. Bernstein denied that motion on June 24. Michael L. Banks of Morgan Lewis & Bockius is counsel of record for Siemens. He did not return calls for comment. Siemens designed their incentive compensation plans to “align the interests of the ICP participants with the profitability of sales and revenue they generated,” according to Bernstein’s opinion. Employees set goals for themselves and were rewarded with bonuses for meeting or exceeding those goals. Siemens had budgeted $29 million to pay for the 1998 bonuses, but early in the year it became clear from accounting projections that the company’s performance in sales and other revenue was exceeding what was projected; therefore, the money slated for ICP “appeared low,” according to an internal memorandum described in the opinion. ICP employees would have received $48 million in total bonus payments before the reduction “adjustment” was made was made in early 1999, according to the opinion. Siemens’ “leadership team” decided to adjust the ICP payments to a level that “they believed to have been more consistent with 1998 financial results,” Bernstein explained. That adjustment meant a blanket 30 percent reduction in the ICP bonuses. The bonuses for at least 25 employees were cut by $50,000. About 380 more had theirs cut by $10,000, and 600 bonuses were cut by $5,000, according to the opinion. The employees and potential class members reside in more than 40 states, including Delaware, New Jersey and New York. Bernstein recounts a reference by Frank Lavelle, a Siemens’ executive, to a clause in the ICP forms that Lavelle said gave the company the right to apply the 30 percent reduction. The clause as it was printed in Street’s 1998 ICP reads: “This plan and the associated targets/quotas maybe adjusted, changed, or terminated at any time, to compensate for changes in sales, support or marketing emphasis.” Bernstein noted that this clause or a substantially similar one appeared in at least 95 percent of the 1998 ICPs. Lavelle believed that the $1.4 billion in software and other products that Siemens sold in 1998 was “a good investment” for the future of the company, but that there were problems with the quality and profitability of that year’s sales that “contributed to the decision to make the … adjustment,” Bernstein recounted. When deciding whether the class should be certified, Bernstein rejected Siemens’ argument that individual issues of law and fact existed and predominated in the case. Siemens had argued also that the Pennsylvania Wage Act and Collection Law couldn’t protect out-of-state employees. But Bernstein concluded that because Siemens required all of its employees nationwide to agree to a mandatory Pennsylvania choice-of-law provision in their employment contracts, all the potential class members had agreed to resolve their employment disputes under Pennsylvania law. Schwartz, of Chimicles & Tikellis in Haverford, Pa. is representing the class with Powell Miller of Miller Shea in Rochester, Mich. “We’re looking forward to continuing to prosecute the case,” Schwartz said.

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