Court Rules Employer Owes No Post-Termination Commissions!
Can you believe it! Wait, hear the WHOLE story first before you start cutting out the commisions to former employees. Here’s the deal, a recent California appeals court made a decision about the importance of a carefully drafted commission pay agreement. The case was based out of Los Angeles and the company was a web hosting business who had hired a sales representative. At the time of hire, the sales person signed a commission pay agreement that basically stated that commissions would only be paid during employment and that there would not be any post termination commissions paid.
Not long after the salesperson began working for the company, he began negotiating with communications giant AT&T for his company to take over providing web-hosting services for some of AT&T’s small and mid-sized business clients. Two years later, upper management finalized an agreement with AT&T to take over the work. However, a little over a month before the deal was completed the sale representative was terminated.
The former employee sued, arguing that he was entitled to a commission on the AT&T transaction because he’d initiated the negotiations with AT&T and remained involved in the activities leading up to the deal. The court disagreed, finding that the commission agreement with his employer “clearly” stated that he was only eligible to receive commission pay while he was employed AND that the agreement RULED OUT the possibility of post-termination commisson payouts.
Understand that the key to success for this employer was a carefully and clearly drafted commission pay plan. Previously, as many of you know, the Department of Labor Standards Enforcement (Labor Board) has held that sales representatives are entitled to commissions based upon a proportionate share dictated by their involvement. Now, to be consistent with this holding, you must make the changes noted above. This will only work for your current employees and yes you can have them sign new commission agreements effective immediately. If they refuse to sign, it does not change the nature of the agreement but document their refusal and practice the policy with every sales representative that leaves.
I will be available to review any agreements that are forwarded to me.