State by State Breakdown of Sales Commission Laws
Introduction
- 35 States have laws that protect independent sales reps and provide penalties for unpaid commissions.
- However, the laws from State to State can have drastically different provisions, penalties and requirements.
- Some States require courts to award 3 times the damages proven by a sales rep for unpaid commissions, while other States offer no penalties, only the collection of the sales rep’s attorney fees.
- Some States will award the company/defendant their attorney fees if they can prove that the lawsuit filed by the sales rep was “frivolous.”
- It is important to acknowledge and understand which States have stronger safeguards and which have weaker safeguards, when considering a lawsuit.
- Our attorneys have over 70 years combined experience in analyzing and applying these laws. We have procured settlements or taken judgments in matters where the laws of California, Nevada, Oregon, Washington, Arizona, Texas, Illinois, Ohio, Minnesota, Pennsylvania, New York, New Jersey, Connecticut, Maine, Massachusetts, Maryland, North Carolina, South Carolina, Tennessee, Florida and Georgia were at issue.
A Hierarchy of Protections for Sales Reps from State to State
The Strongest Protections:
- The New Jersey Sales Commission Protection Act
Requires Courts to award 4 times the contract damages proven by a sales rep when principal failed to pay commissions due within 30 days of termination, or within 30 days of their due date after termination. It also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Arizona Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep, and the sales rep’s reasonable attorney fees, if they win the case.
Also, it allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (a codified claim for bad faith termination)
- The California Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep when principals don’t pay commissions according to the terms of the SRA. It also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Texas Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep operating in Texas when principals with non-compliant SRAs (under Texas law) don’t pay sales commissions within 30 days of termination. Also requires an award of the sales reps reasonable attorney fees if they win.
- The Colorado Sales Commission Protection Act
Requires Courts to award 3 times the contract damages proven by a sales rep.
Somewhat Strong Protections
- The New York Sales Commission Protection Act
Requires Courts to award 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 5 days of termination or within 5 days of their due date, after termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Connecticut Sales Commission Protection Act
Requires Courts to award 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination or within 30 days of their due date, after termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
Lesser Protections
- The Georgia Sales Commission Protection Act
Allows Courts to award up to 2 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination. Also requires an award of the sales rep’s reasonable attorney fees if they win the case.
- The Illinois Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep. Also requires an award of the sales reps reasonable attorney fees, if they win.
- The Maryland Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 45 days of their due date after termination and requires an award of the sales reps reasonable attorney fees if they win.
Also allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (a codified claim for bad Faith termination).
- The North Carolina Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when principals don’t pay sales commissions within 30 days of termination or within 15 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees, if they win.
Also allows claims by sales reps for commissions on sales even after termination if they can prove that the termination was done to avoid the payment of those commissions (another codified claim for bad faith termination)
- The Michigan Sales Commission Protection Act
Requires Courts to award 2 times the contract damages (or $100,000 – whichever is less) when Principals don’t pay sales commissions within 45 days of termination or within 45 days of their due date, after termination.
- The Ohio Sales Commission Protection Act
Allows Courts to award up to 3 times the contract damages proven by a sales rep when Principals don’t pay sales commissions within 30 days of termination or within 13 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees if they win.
- The Pennsylvania Sales Commission Protection Act
Allows Courts to award up to an additional 2 times the contract damages proven by a sales rep when principals don’t pay sales commissions within 14 days of termination or within 14 days of their due date after termination. Also requires an award of the sales reps reasonable attorney fees, if they win.
Weak or No Protections
Common Themes in State Laws
Written Commission Agreements
Itemized Accountings
Some States require manufacturers to include information on purchase orders or invoices for which commission is being paid with the payment of each commission.
Timelines for Post-Termination Payments
SCE
The Sales Commission Enforcers
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What to Do If Your State Offers Minimal Protections
Negotiate Stronger Contracts
- Clear and protective provisions for commissions, termination and post-termination commission payments should be included in every contract since State law will not protect you if your principal breaches.
- Attorneys knowledgeable about the law pertaining to sales reps are able to draft provisions that will protect sales reps and their long-term commission revenue.
Analyze whether other State laws may offer protection
- Other State laws may sometimes offer protection, even though a sales rep is not a resident of that State. This is true when a sales rep has States outside of its home State as part of its authorized territory.
Leverage Case Law
- When a sales rep has little or no protection from their State laws, there may still be hope in exploring Common Law principles used by Courts as precedent, including the doctrines of bad faith termination and Procuring Cause.
FAQs for This Article
The States with the strongest laws protecting sales reps are Arizona, California, New Jersey, New York, Texas, Connecticut and Colorado.
Penalties that employers face for not paying commissions include everything from payment of the sales rep’s attorney fees to payment of quadruple the amount that is owed under the contract plus the sales rep’s attorney fees.
A written agreement is not necessary to enforce commission rights, and in fact oral agreements can sometimes give a sales rep substantial leverage to settle cases because they are usually prohibited, resulting in penalties.
The deadline for a principal to pay commissions after termination varies from State to State, from 5 days up to 45 days.
Unpaid commissions can still be recovered in States with weak protections through strategic legal action based on long-standing Common Law legal principles.
Key provisions to include in a contract include protective provisions concerning earning commissions, payment timelines, commission percentages, termination, and post-termination commissions.
Attorneys knowledgeable in the law concerning sales reps and the State laws that protect them and their commissions can build strong cases, resulting in settlements.