Former sales manager to receive more than $1M in breach of contract action

By Nicholas Malfitano | Mar 9, 2016

U.S. Court of Appeals for the Third Circuit  

PHILADELPHIA – Per a decision from the U.S. Court of Appeals for the Third Circuit, a medical software company’s former sales manager and shareholder is entitled to compensation resulting from a breached employment agreement.

On March 1, judges D. Michael Fisher, Michael A. Chagares and Robert E. Cowen determined the U.S. District Court for the Western District of Pennsylvania did not err when it awarded damages to appellee William Giacone of Cutchoque, N.Y., in the form of unpaid wages, due to a breach of contract.

Giacone, a former regional sales manager and minority shareholder, claimed that Virtual Officeware (VOW) and its President, David Harel of Pittsburgh, breached his employment agreement and looked to recover unpaid wages under the Pennsylvania Wage Payment and Collection Law (WPCL). VOW and Harel filed counterclaims alleging it was Giacone who breached the parties’ contract instead.

Giacone claimed the defendants removed his executive seniority, removed his supervisory duties over salespeople who reported to him, failed to properly compensate him on Application Service Provider contracts, and improperly restructured both the sales staff and related commission structure in the company.

The District Court held a bifurcated bench trial, during which it found in favor of Giacone on his breach of contract claim against the defendants, and in favor of Giacone on the defendants’ counterclaim for breach of restrictive covenants. The Court cited more consistent and credible testimony from Giacone, as compared to the defendants, Harel in particular, as the reason for its decision.

The Court ruled Giacone was entitled to $1,104,839 in damages under the WPCL for breach of contract, plus reasonable attorneys fees in the amount of $257,400. Judgment was also entered for Giacone on the counterclaims, whereas the Court disallowed the defense from collecting attorneys fees.

The defense timely appealed to the Third Circuit, challenging the District Court’s findings of fact and conclusions of law.

“According to the District Court, Giacone proved that defendants materially breached the employment agreement by taking away his guaranteed compensation as well as his status as a senior executive,” Cowen said.

Though the defendants insisted no changes were made to Giacone’s employment when he resigned, the District Court determined, through testimony of the parties involved and documentary evidence, that the defendants indeed implemented the changes Giacone described.

In response to these changes, Giacone invoked Section 4(c) of the employment agreement, providing for “Termination for Good Reason by Employee”, giving him the ability to resign for cause if he provided written notice within 20 days for “the assignment to employee of duties that are not consistent with the duties provided for in Section 2(b), a reduction in the rate of employee’s base salary, or a material breach by the company of this agreement.”

Though, the agreement also gave the defendants an opportunity to cure any supposed breach.

Giacone pointed to denial of a bonus and Application Service Provider commission payments as grounds for a material breach, in a written letter from his attorney sent to Harel through e-mail and standard mail on July 3, 2013.

“As a result, the District Court found it unbelievable that defendants lacked actual notice or did not understand their alleged breaches of the employment agreement. Given the evidence in the record and the District Court’s own credibility assessments, this finding of fact was not clearly erroneous,” Cowen stated.

Though Harel responded to Giacone via e-mail on July 8, 2013, Cowen said this e-mail did not cure the breach and “did not expressly refer to Giacone’s status as a senior executive, the commission schedule, or the ASP contracts”, and explained the defendants still refuse to acknowledge their modification of the employment agreement.

Cowen added the District Court did not err in its calculation of damages, referring once again to the employment agreement, which provides that:

“In the event of a ‘good reason’ termination, VOW shall pay Giacone: his full base salary, additional compensation and all other compensation earned through the date of termination, all base salary, additional compensation and all other compensation expected to be earned through the end of the remaining employment period, and Company shall be liable for all damages caused by said termination.”

Cowen found this rationale illustrated the defendants lacked good faith standing to withhold payments from Giacone.

“While defendants contend that they acted in good faith, an employer must establish its good faith through clear and convincing evidence. Given this heavy burden, we do not believe that the District Court committed reversible error by finding that they lacked a good faith basis to withhold payment,” Cowen said.

The appellants are represented by Melissa L. Evans and A. Patricia Diulus-Myers of Jackson Lewis, in Pittsburgh.

The appellee is represented by Jordan L. Strassburger and Gretchen E. Moore of Strassburger McKenna Gutnick & Gefsky, also in Pittsburgh.

U.S. Court of Appeals for the Third Circuit case 15-1940

U.S. District Court for the Western District of Pennsylvania case 2:13-cv-01558

From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at

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