Employee Handbook Blog

COMMISSIONS: A WRITTEN, CLEARLY WORDED COMMISSIONS PAYMENT POLICY IS AN IMPORTANT PROTECTION FROM “WAGE ACT” LIABILITY FOR MASSACHUSETTS EMPLOYERS (April 2013)

Attorney Leslie Lockard
The Law Office of Leslie Lockard, P.C.
P.O. Box 537
Walpole, MA 02081
Tel. 508 850-9800
FAX 508 850-9801
Email: Llockard@leslielockard.com
Website: www.LeslieLockard.com

It has become increasingly common for employees to seek triple damages under the Massachusetts Wage Act for unpaid commissions they claim are due them. In a decision issued in April of 2013, Weber v. Coast To Coast Medical, Inc., the Massachusetts Court of Appeals confirmed that awards of unpaid commissions meet the Wage Act statutory definition of “wages”, for which triple damages are mandatory. To protect themselves from this type of litigation, it is very advisable for Massachusetts employers to have a written, clearly worded commissions payment policy. This policy should generally specify what conditions an employee must meet for a commission to be payable, exactly how the commission will be calculated, and when after the employee’s departure from the company the right to earn a commission ends. It is not unlawful for an employer to have no written commissions policy, but having a clearly worded policy helps prevent misunderstandings and minimizes the risk of employee lawsuits. If an employer is found to have violated the Wage Act by failing to pay commissions when due, the amount of the unpaid commissions is automatically tripled (even if the failure to pay was inadvertent), and the employer is also required to pay the employee’s legal fees and costs. In the Weber case, for example, $11,927 in unpaid commissions were found to be due. This amount was tripled to $35,937, and $25,000 in attorney fees, plus interest and litigation costs, were also awarded. This potential for extensive liability may give an employee a substantial bargaining advantage if the employer has no written commissions policy, or has a written policy which does not cover all necessary topics or is ambiguously worded. One particularly ill advised omission from employer commissions policies is specific wording as to how long and under what circumstances commissions will be paid once an employee resigns or is discharged. Disputes over what commissions are due to employees after their employment ends are a particularly common subject of litigation.

The Massachusetts Wage Act requires that compensation due to employees be paid promptly. The law applies “so far as apt to the payment of commissions when the amount of such commissions, less allowable or authorized deductions has been definitely determined and has become due and payable” to the employee.” Courts have generally found that a commission is “definitely determinable” once the employer has sufficient information to make the commission arithmetically determinable, and “due and payable” once the contingencies have been met that render the employee eligible for a commission. It is therefore important for an employer to clearly define what conditions must be met before a commission is due to an employee. For example, does the employee become eligible for a commission as soon as the customer signs a contract? Or not until the goods are shipped or the services performed? Or only upon receipt of payment from the customer? In a recently issued decision in favor of the employee in a commissions dispute, the Court stated that when the employer has not defined what the employee must do to be eligible for a commission, courts will generally find that a commission becomes due when the employee closes the sale.

Employers who compensate employees in whole or in part by paying commissions should consider stating their commissions policy clearly in writing. Employers would be well advised to have their employment attorney review their commissions policy to ensure that it is clearly and accurately worded, and sufficiently protective from Wage Act liability. Among the elements that employers should generally clearly address in a commissions policy are the following:
  1. Precisely what conditions must be met for a commission to be payable to an employee? For example, is a commission triggered when the customer signs a contract? Or not until the customer’s payment is received and the check clears?
  2. By what exact formula are commissions calculated? Are there any exceptions to this formula?
  3. When are commissions paid to the employee? On the company’s next regular pay day after the employee meets the conditions for a commission payment? Or on the first regular payday in the calendar month after the conditions are met? Or on the next payday after a quarter ends?
  4. Will the employee be paid a regular draw against future commissions? If so, when and how much?
  5. Are there any circumstances in which a commission would be split between two or more employees, such as when two employees each play a substantial part in making the sale? If so, what circumstances will generate a split commission, and how will the commission be split?
  6. Would there be any circumstances in which a chargeback would arise from a commission already paid? For example, if a commission is paid based on a percentage of the expected value of a contract a customer agrees to, what happens if the customer does not pay, or pays only a part of what was agreed to?
  7. Does the payment of a commission include any obligation for the employee to provide services to the customer during the course of the agreement with the customer? For example, is the employee required to help the customer get the agreed upon goods or services installed and operating smoothly?
  8. What happens when the employee leaves the company, either voluntarily or involuntarily? For how long, if at all, does an employee remain eligible to earn commissions for sales already completed? Or for sales in the “pipeline”, where the employee may have done a good deal of work in seeking to generate a sale but the sale has not been completed by the time of the employee’s departure?
  9. Addressing such matters clearly in writing will go far to minimize the risk of employee Wage Act lawsuits based on allegedly unpaid commissions. Employers should also remember to update and redistribute their written commissions policy if they make changes to it, as may well intermittently occur as business conditions change.
THIS ARTICLE IS FOR GENERAL INFORMATION ONLY, AND IS NOT INTENDED TO PROVIDE LEGAL ADVICE AS TO ANY PARTICULAR SITUATION. EMPLOYMENT LAWS ARE CONSTANTLY SUBJECT TO CHANGE. QUESTIONS ABOUT PARTICULAR SITUATIONS SHOULD BE DIRECTED TO A KNOWLEDGEABLE EMPLOYMENT ATTORNEY.





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Contact Info

Attorney Leslie Lockard
The Law Office of Leslie Lockard, P.C.
P.O. Box 537
Walpole, MA 02081
Tel. 508 850-9800
FAX 508 850-9801
Email: Llockard@leslielockard.com
Website: www.LeslieLockard.com