When a commissioned salesperson leaves employment, the most common dispute we encounter involves that employee’s entitlement to payment of commissions after their departure date. Commissions are defined as wages, meaning that under many states' wage and hour laws, failure to pay amounts owed to former employees can result in claims for liquidated damages and attorneys' fees.
In some situations, the employer fails to adopt a comprehensive written commission plan, or the plan does not clearly explain entitlement to payment of commissions upon separation from employment. While some state laws restrict employers' ability to abruptly cut off commissions following termination of employment, most provide that the company can establish such rules as long as they are clear and unambiguous.
Some commission plans state that payments cease upon separation from employment. Others provide that departed employees will be paid commissions for an established time following departure if customer payments are received during that period. Less frequently, plans allow payment if the sale was substantially completed before the employee departs, with no requirement for customer payment. Commission plans should define what constitutes completion of a sale, especially if other employees contributed to the sale following a salesperson’s departure, as well as clawbacks for returned goods or similar problems with the transaction.
Any ambiguities in the commission plan will be interpreted in the departed salespersons' favor. When drafting the plan, employers should think through scenarios associated with a salespersons' departure, and explain the consequences of those contingencies.
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