There are multiple industries that pay their employees in sales commissions. These wages may be in addition to regular pay, as in incentives or bonuses, or they may constitute workers’ entire salaries in commission-only jobs. Some of the sales positions that are typically paid in commission include pharmaceutical sales representatives, car salespersons, leasing agents, and realtors.
When an Employee Leaves a Company
One of the most common times that legal disputes arise over commissions is when an employee leaves a company. For example, if a sales representative closes a sale but then leaves his or her job before the commission has been paid, questions often arise over whether he or she is legally entitled to the commission. Several factors will be looked at to determine the outcome of the dispute, such as the employment contract, communication evidence, understanding of timing, and the state where the salesperson is employed.
Sales Representatives’ Employment Contracts
When sales representatives are hired, they commonly enter into written agreements with their companies that specify entitlement to commissions, incentives, and circumstances that would impact payment. These agreements should be express contracts, which means that they should be clear, legally enforceable, and written with explicit terms. Obligations of both the company and the employee should be spelled out clearly in the contract. Even with a detailed written agreement, however, disputes may still occur.
Evidence Based on Communication
Without employment contracts, communication between sales representatives and their employers is often looked at as evidence. For example, if a salesperson contacts his or her employer about an unpaid sales commission, he or she may be told that the commission won’t be paid until the company receives payment from the customer. This written or verbal communication could be perceived as evidence that employees are not paid until purchasers pay the company.
Understanding of Timing
When an employee leaves a company because of voluntary or involuntary termination, the timing often plays a part in determining whether he or she is legally owed commissions. There are times when nonpayment is an oversight, and the error occurs due to the timing of the employee’s departure. In other cases, lack of payment may be intentional, which is when legal disputes commonly arise. Some contracts may specify that an employee must remain employed with the company after a sale in order to receive commissions. In other agreements, timing may not matter, because the understanding may be that commissions are earned when goods are sold.
State Laws on Commissions
Commission laws and regulations regarding severance agreements vary depending on the state. Some states invalidate employment contracts that claim that salespersons are only entitled to commissions during employment. If the sales representative left a company for reasons beyond his or her control, for example, the company may be ordered by the courts to pay earned commissions. In some cases, not only is the company required to pay the commission, but also the attorney fees and up to three times the amount of the commissions.
In addition to written contracts and spoken agreements about commissions, courts look at other evidence to determine the legal rights of salespersons to collect commissions. Employee handbooks, letters and emails, plus past practices may all play a part in deciding whether sales commissions are legally deserved or not.
Knowledge of Rights
It is wise for both an employer and a sales representative to read all documents, handbooks, and contracts carefully. Before either party signs a separation package, release, or termination agreement, a legal expert should be consulted. While the employment contract is often the deciding factor in a case, other paperwork and spoken agreements can play a part in the decision-making process.
Legal disputes about sales commissions can be minimized with clear contracts and specific language in all sales agreements. It is always best to look paperwork over carefully before signing on the dotted line.
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