Class Action Suit Says Bonus Cuts Were Contract Breach

August 4, 2004 ( - Current and former employees of Siemens Medical Solutions Health Services Corp, who are suing the company for cutting incentive-based bonuses, have been granted class action status.

Plaintiff Janet Street brought suit against the Malvern, Pennsylvania-based company after her 1998 incentive-based bonus was cut by 30%, which she contends was a breach of contract. A Philadelphia judge certified the national class, which could potentially cover 1,200 workers, according to a Legal Intelligencer report.

Common Pleas Judge Mark Bernstein, who certified the class, 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 counters that senior management had a right to reduce the employee bonuses, called incentive compensation plans (ICP), at any time. 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% of the 1998 ICPs.

In the case of 1998 bonuses, the company said they were designed to “align the interests of the ICP participants with the profitability of sales and revenue they generated.” 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, Bernstein’s opinion said.

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% 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.

The case isStreet v. Siemens Medical Solutions Health Services Corp .