Why it matters

Upholding an oral contract, the California Court of Appeal agreed with an employee that she should be paid a commission for certain work—despite an employment letter that expressly stated it superseded any oral agreements. M&C Hotel Interest, Inc., hired Jackie Chen in 2010 with a written job offer that “superseded” any oral statements by managers or supervisors. Chen later claimed her boss promised her 5 percent commission on the total revenue of any hotel room sales she made. The employer declined to pay the commission and Chen sued for breach of contract. A trial court found she was entitled to the commission based on an oral contract with her employer. The appellate panel affirmed, ruling that the offer letter referred to any oral statements that existed at the time Chen accepted the job and did not apply to subsequent statements. The court explained that the 5 percent commission was independent and collateral, supported by new consideration and extra sales duties. For employers, the opinion provides an important reminder to include language broad enough to cover all oral statements in order to avoid a similar fate.

Detailed discussion

Jackie Chen began working as the director of central procurement for M&C Hotel Interest, Inc., the owner of the Millennium Biltmore Hotel in downtown Los Angeles, in 2010, with responsibilities including cost control and savings for items such as furniture and equipment. The next year, her supervisor suggested she help bring in more Chinese business to the hotel and told her he would get her additional compensation because sales were not part of her regular job.

Chen began working to get an agreement with China Southern Airlines and indicated that 5 percent was the industry standard on commissions for room sales. She obtained a memorandum of understanding with the airline for a one-year period, and her supervisor told her the hotel would pay her the 5 percent for every room sale. The airline renewed its contract at least two times.

In 2013, Chen sent her production report requesting commission for 2012 room sales. The hotel refused to pay her. After she resigned, the hotel sent a letter stating that it had a policy of not paying commission on crew room sales and claimed she was repeatedly informed of this policy.

She sued, asserting causes of action for breach of oral contract and declaratory relief. Following a bench trial, the trial court found her supervisor had actual authority to enter the agreement on behalf of the hotel and that the plaintiff was owed a 5 percent commission on her room sales for a three-year period. The court ordered payment of contractual damages of $149,283.11.

The hotel appealed. It argued that the plaintiff’s written employment agreement precluded the existence of the oral contract, that the supervisor lacked the authority to enter the contract, and that damages should not have been awarded for three years, which included time after Chen left the hotel’s employment. The panel affirmed the trial court verdict on all counts.

The court quickly rejected the hotel’s argument based on the employment offer. The plaintiff’s employment agreement stated: “Please note that any oral statements on the part of supervisors, managers, or other employees of [defendant] concerning conditions of employment are superseded by the terms of this letter … ”

“Implicit in the present tense use of ‘are’ is that the written employment agreement supersedes any oral statements in existence at the time plaintiff entered into employment,” the panel wrote. “However, the employment offer’s language does not mention anything about future oral statements or agreements.”

Chen’s employment agreement concerned her salary and her job duties as director of central procurement, the court added, while the subsequent oral contract involved a new job duty—sales—with a different form of compensation. “The oral contract was thus independent and collateral to her written employment agreement,” the court said, “supported by new consideration, namely new compensation.”

The appellate panel also agreed with the trial court that Chen’s supervisor had the authority to enter the oral contract on behalf of the defendant and that the evidence of mutual assent between the parties was “quite clear.”

As for the length of the oral contract, the panel was not persuaded by the hotel’s position that it should have ended when the plaintiff left the defendant’s employ. At trial, the supervisor testified that the standard duration of such contracts was three years and that he agreed the commission payments should last for the life of the China Southern Airlines business relationship with the hotel. Further, the parties did not include a requirement in the oral contract that the plaintiff had to be a current employee to receive the commission, the court noted.

In addition to affirming the verdict in favor of the plaintiff, the panel found that attorneys’ fees were appropriate because the room sales commission fell under the California Labor Code’s definition of “wages,” remanding the calculation of a fee award to the trial court.

To read the opinion in Chen v. M&C Hotel Interest, Inc., click here.