Auto Dealership Pay Plan Litigation: Dealer Employees

It is not uncommon for the very employees upon whom the dealership relies to have complaints with upper management or ownership. My experience over the years has demonstrated that the dealership employees were subject to the same type of “trickery” to which the consumers are subject. In my experience, it is still common for the upper-level management and/or ownership to implement schemes or plans, intentionally or unintentionally, that reduce the commissionable gross proceeds for the salesman. The salesman and a large portion of the dealership employees rely upon the basic profit on the sale and financing of automobiles. I have seen cases where the dealerships have violated the pay plans by claiming various alleged “fictitious” costs. It is these costs, when added to the initial cost of the automobile, which reduces the gross commissionable proceeds for the dealership employees.

As an example, if a dealership acquired a vehicle at auction for $5,000 and it is placed on the books at $9,000, in my opinion the salesman has been denied the appropriate profit on the increased cost of the vehicle.

Further, hypothetically, if a dealership principal owned companies which supplied the gap or other after-market products, what would the appropriate costs be attributable to this product? The “captive” company could price a product wherein there is no profit for the dealership, thus funneling the profits into the subsidiary, which is owned and controlled by the dealership principals and/or management team. In my opinion, the sales staff or the employees have a claim against the ownership for this type of conduct.

The New Jersey Supreme Court has demonstrated in the case of Wilson vs. Hess that it is the obligation for all parties to a contract to perform it fairly and in good faith. It is this failure to perform a contract in good faith which results in the imposition of the possibility of damages. In the Wilson case, the franchisor, Hess, was alleged to have set the prices up in such a manner to drive the franchisees out of business. I guess in a perfect world, a franchisor is free to set whatever price they want to charge to the franchisee. However, New Jersey Courts imply an obligation to act in good faith.

Many complaints from salesmen over the years include the dealership failing to reveal the method and manner in which the pay is calculated, failing to disclose the amount of charge backs, failing to disclose the appropriate cost of the vehicles and various products sold, and failing to comply with the written pay plans. The causes of action under New Jersey Law range from breach of contract and fraud to lack of good faith and fair dealings. If you feel you have been treated improperly by a dealership, feel free to contact the law firm of The Law Office of Jonathan Rudnick.