Businesses involved in the sale of a particular product or service will, of course, employ salespeople to sell those products or services. In nearly all cases, sales representatives are paid some form of monetary commission based on their level of sales using some set of variables (i.e. percentage of each sale; percentage of each new contract; total number of sales, etc.).
While determining how a commission is calculated may be simple, figuring out when the commission is “earned” for purposes of it being a payable wage can sometimes be difficult in the absence of a written agreement or policy. A recent decision in the Commercial Division, New York County dealt with precisely this issue.
In Linder v. Innovative Commercial Systems LLC, 2013 NY Slip.Op. 51695(U) (Bransten, J.), Plaintiff Gary Linder (“Linder”) commenced a lawsuit against his former employer, Innovative Commercial Systems LLC (“ICS”), to recover sales commissions he believed he was owed after he was terminated. ICS is in the business of installing and maintaining residential and commercial security systems. As a salesperson, Linder was paid commissions based upon each new contract he procured for ICS, with a varying percentage based on whether it was an installation or maintenance contract. However, the actual commission payment was not made to Linder at the time the contract was procured, but instead when the customer paid the ICS invoices under that contract. This practice continued for a number of years and ICS would regularly provide Linder with all documentation regarding the account receivables and copies of checks when customers would make payments. Linder even assisted in collection efforts to obtain payments from delinquent customers on his accounts. As collection attempts on delinquent accounts continued to come up short, so too did Linder’s sales totals and, in 2009, he was fired.
After his termination, Linder commenced the lawsuit against ICS asserting numerous claims including breach of contract, breach of implied covenant of good faith and fair dealing, unjust enrichment, and New York Labor Law violations – all relating to an alleged failure by ICS to pay him sales commissions after he was terminated. Both parties ultimately moved for summary judgment.
According to Linder, he “earned” his full sales commissions at the time each contract was procured and thus, he should have received what he was “owed” in commissions even after his termination. Indeed, Justice Bransten, citing Yudell v. Ann Israel & Assocs., Inc., 248 A.D.3d 189, 190 (1st Dep’t 1998), acknowledged that New York courts have held that once a commission is “earned,” it becomes a wage that cannot be forfeited and termination would not affect the employee’s right to receive that commission. Linder also pointed to the fact that there was no written agreement between the parties regarding the commissions, so the commission was earned “upon the employee’s production of a ready, willing and able purchaser of the services” (quoting Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008)).
However, ICS argued that Linder only “earned” his commissions when payments were made by customers and, as such, he would not be owed anything post-termination. The Court agreed. Citing to the same Court of Appeals decision in Pachter, Justice Bransten noted that the Court there had found that the absence of a written agreement was not determinative. In fact, the Court in Pachter held that when there is no written agreement, the commission is “earned” based on the parties’ express or implied agreement, and when there is an extensive course of dealings over a number of years, an implied contract is created regarding when a commission is “earned” and becomes a wage.
Justice Bransten, in granting summary judgment in favor of ICS and dismissing Linder’s complaint, held that based on the parties’ decade-long course of dealing which documented how commissions were calculated and the history of ICS only paying commissions to Linder upon payment from customers, there was an implied agreement as to the commission structure and ICS complied with its obligations regarding payment of commissions through the time Linder was eventually terminated.
The Linder case presents an important issue that should be reviewed by all employers if their business is one in which they are paying out sales commissions to employees. Having a written, agreed upon procedure or policy laying out how and when commissions are earned, and following through with that procedure or policy, is vital to avoid problems such as the one presented in this case.