Although some of the small company owners I have encountered previously few years thought these folks were immune from being sued for unpaid commissions by their salespeople, they learned — past too far — that New York’s Labor laws dictated otherwise. As part with their Monday morning quarterbacking, these business people came to know that had they invested a modest number of additional time and resources into drafting an extensive and clear commission agreement from the start, they certainly may not face contact paying commissions at the salesman’s wished upon (instead of agreed upon) terms, and possibly could have prevented litigation altogether. After some further analysis, evidently these businesses’ surprise (and Achilles’ heel) was this product of their belief in a single or more in the following myths:
Myth #1 – Signing bonuses are inherently discretionary – New York’s courts have held that in which a signing bonus is guaranteed to be a term of employment that may be tied to the salesperson’s job performance (including the sale of the new account), and further, just isn’t expressly made at the mercy of management’s discretion, the bonus is deemed wages in the Labor Law, thereby, can’t be forfeited if earned ahead of termination and/or resignation.
Myth #2 – “If it Isn’t Written, It Doesn’t Exist – contrary to public opinion, must be commission agreement is oral does not necessarily mean it really is unenforceable. In that regard, while a business can change the regards to an at-will employee’s agreement prospectively, it can’t change the terms with the agreement retrospectively. Simply put, as soon as the salesperson has recently earned commissions at an arranged rate, the employer cannot turn back and don’t pay those commissions.
Myth #3 – Termination for Cause Is Cause for Forfeiture of Commissions – New York’s Labor Law clearly states that commissions which can be earned during employment (i.e., vested), are not forfeited like a matter of public policy.
Myth #4 – If It Isn’t Clear in the Contract that the Commission is Owed, the Salesperson Can’t Collect – an elementary, and nearly uniform rule of law is any ambiguity in a very contract is construed from the drafter in the contract. As a practical matter, which means the courts are obliged to side with the salesperson regarding any provision inside the agreement which doesn’t make it patently clear whether, and if so, just how much, commissions are owed for a particular sale.
As the foregoing makes clear, it certainly pays to own well-crafted and clear agreements with commission salespeople. The short-term cost on time and money won’t help avert misunderstandings, and therefore safeguard company morale, and often will likely save untold sums of greenbacks by either minimizing, or preventing entirely, the price of litigation.