Movie fans often mention Glengarry Glen Ross, the great David Mamet play and film, when seeking to illustrate the pressure, risk and, yes, unfairness, that permeates the world of commission work. For a more humorous take, try Barry Levinson’s underrated Tin Men. The plots of these films remind us of how perilous and uncertain the work of commission earners can be.
The ranks of commission paid workers are legion: real estate professionals, telephone workers, retail workers, insurance agents, financial services professionals, advertising agents, recruiters, automobile salespeople, travel agents, manufacturers representatives, and many, many more. Some are employees, others are independent contractors or sales representatives. They work honest and long hours, and the last thing they need is to experience wage theft in the form of shenanigans with, or outright refusal to pay, earned commissions.
Commissions can be structured in a variety of ways:
- Salary plus commission
- Draw against commission
- Straight (100%) commission
- Straight line or relative commission
- Growth-based commission
- Territory-based commission
- Shared commission among a team based on contributions
- Finally, and often the subject of dispute, commissions can be capped or uncapped.
Typical issues with commission plans:
- Improper changes.
- Promotional materials misstate the real terms of the plan.
- Too complicated/too many components.
- Secrecy: ”Salespeople aren’t allowed to see that calculation.”
- Annual plan not communicated until March or April.
- Poor record keeping.
- Inequitable division of commissions earned by a team, especially in the technology, major equipment, and real estate sales.
- Slow, or no, pay, especially if the commission earner is no longer on the job.
- “Percentage of profits” and other opaque or malleable measurements.
These problems are not all illegal, but, depending on the circumstances, many scenarios and disputes arising between commission earners and those paying commissions are actionable and can be remedied in court.
As with most labor and employment issues, there are both federal and state laws which protect the commission worker. The US Department of Labor enforces federal minimum wage and overtime rules, which provide, among other requirements:
- An employer’s commission plan cannot be structured in a way that the hourly wage is less than the minimum wage.
- Inside commission workers (less 50% of their time outside the office selling) are usually entitled to overtime.
The USDOL does not specifically enforce workers’ rights to be paid commissions. An employer systematically infringing on the rights of a group or groups of workers can be subject to a civil class action, wherein one or more injured workers represent all those in the same situation. A similar approach, called a collective action, can apply to an employer systematically denying federal overtime and minimum wage benefits to a group of employees.
State law is therefore important to enforcing individual claims of commissions due. Most state laws and court cases hinge on exactly when the commission is “earned.” The written commission plan, correspondence, presentations, and previous practices of the parties are the key factors in answering the essential question. A commission can be deemed “earned” just about any time in the relationship, as when:
- the salesperson introduces a buyer and seller who later make a deal (or sometimes even when the deal does not close!),
- the contract is signed,
- a deposit is made,
- the goods or services are delivered,
- the supplier is paid by the customer,
- or, even after a warranty period or other time has passed.
Some state laws require that you be paid a commission if you quit your job before the commission is fully paid out, it all depends on exactly when the commission is “earned.” Once a commission is earned, it becomes your wages due, and any attempt to avoid payment is considered wage theft.
Your employment agreement and the commission plan should spell everything out very clearly. Unfortunately, in the rush to get the new job and the multitude of things to sign when coming on, the employment agreement and commission plan usually do not get the attention they deserve. In other cases, the documents themselves are unclear, ambiguous, or being misapplied by the employer.
At Pelton Graham we are experts on unpaid wages and commissions and can advise you of your rights and remedies if commissions are unpaid or in dispute. There is no charge for the initial consultation, and if there is a smaller amount due than would warrant legal representation, we can direct you to the appropriate small claims court.
You should act promptly to seek advice, because labor laws have strict and varying time limitations in which to make your claim. Contact us today for a no-cost consultation via telephone, video link, or in person.