What to Do If Your Employer Delays Commission Payments
Introduction
- Sales commissions are the lifeblood of a Sales Agency; but they don’t come easy.
- There are few things more frustrating than putting in substantial efforts over a long time and then not receiving earned commissions, or receiving them late.
- Delays in commission payments are often a sign of bigger problems. If your principal has become financially suspect, there is no time to delay. “First in, first out,” is our firm’s motto for collecting unpaid or late commissions from dead beat Principals.
- Other times, delays in commission payments are a planned action to pressure the sales rep into terminating the contract, thus benefiting the principal who gets to avoid future commissions for sales in the pipeline.
- Don’t let this happen! Read further for what to do when commissions are paid late. This will include actionable steps from addressing the issue directly to seeking legal help.
Understanding Why Employers Delay Commission Payments
Cash Flow Issues Within the Company
- Financial struggles can lead employers and principals to delay payments, even if commissions are contractually owed.
Disputes Over Commission Calculations
- If sales representation contracts are not clearly drafted with the proper protections, disagreements over amounts owed or eligibility can lead to payment delays.
Tactics to Avoid Paying Entirely
- If there is no written contract, or an oral contract is unclear about commission rights or calculations, principals may delay payments to avoid setting “course of dealing” as a way to avoid all compensation.
- Companies may also try to pay the commission at a lower percentage than what is owed under the agreement. If these sales rep then accepts that commission at the lower rate, Courts may look at that as an agreed-upon modification of the contract.
DO NOT ALLOW THIS TO HAPPEN! Contact an attorney immediately if commissions are delayed or if the company is threatening to pay them at the wrong percentage.
SCE
The Sales Commission Enforcers
Find Out How Much Your Case Is Worth
Over 90% of our cases settle without prolonged litigation.
Immediate Steps to Address Payment Delays
Review Your Contract
- Start with a contract review. The provisions may not have been reviewed for many years. Sales reps must first understand the terms related to commissions, before communicating with their Employer.
Research State Laws Offering Penalties for Late Payment
- 35 states have laws that protect sales reps and their commissions. Some are stronger than others but many require awards of penalties such as double, triple or even quadruple the amount of commissions owed. This can be great leverage.
Document Everything
- Collection of evidence is essential. Accumulate emails, orders, invoices, commission accountings and other communications about the sales process.
- Prepare a spreadsheet documenting the date commissions were due, and the date commissions were paid.
Communicate Directly With Your Employer
- Address the issue directly with your Principal or Employer, requesting a meeting or sending a written inquiry.
Send a Formal Demand Letter
- If communication with the Principal or Employer does not work, hire an attorney to prepare a demand letter,
- Include a statement of what is owed and a deadline for resolution. For added leverage, threaten the penalties under State Law.
When to Escalate the Issue
If an Employer Still Fails to Pay on Time, Seek Legal Advice
- Sales rep commission disputes are a niche area of contract law. Consult only with an attorney experienced in such disputes, to gain the best leverage.
- Highly trained attorneys can evaluate contracts, calculate damages, ascertain how penalties can be threatened, and write demand letters.
Send a Formal Demand Letter
- A strong demand letter from an attorney can often and commission disputes quickly. When commissions are paid late, the demand should include the threat of the penalties offered by state law if the commissions are not thereafter paid on time.
- A demand letter should also document when the commissions were due, and when the commissions were paid; or if they have not been paid at all.
- This action makes a sales rep’s intent to pursue a claim clear, without immediately escalating a dispute to legal action.
File a Lawsuit for Unpaid Commissions
- Filing a lawsuit is a final option. However, when sales reps file lawsuits for unpaid commissions, most times there are penalties for the Employer’s or Principal’s violation.
- Most States have Labor or Commercial Codes that require payment of commissions within a certain time and award penalties if not timely paid.
- Our expert attorneys have over 70 years combined experience in this area of law, and have assisted sales reps with matters in (or touching on) 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.
- We have a documented 98% success rate in settling disputes or obtaining judgments on behalf of sales reps and agencies in their commission litigation.
Legal Remedies for Delayed Commission Payments
A Sampling of State Laws on Timely Commission Payments
- 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 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 on time according to the terms of the contract. 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 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.
Filing a Lawsuit for Breach of Contract
- After all other options and failed, a lawsuit for breach of contract to recover unpaid commissions can still result in success.
- In fact, a good percentage of lawsuits are settled within 60 days of filing the complaint and having it served on the defendant. When defendants see their violations in writing, and the penalties they will have to pay, its good incentive to settle.
- Other times, in gray area cases (or cases with litigious defendants), reps can expect to be involved with litigation for 6 months to 2 years (usually the max time to get a case to trial).
- The term can be depressing for a sales rep but there are several upsides to “protracted litigation.”
1) It helps establish damages in post-termination scenarios because sales have had the time to develop.
2) If the case is won, the defendant will be required to pay the plaintiff’s attorney fees.
3) A plaintiff cannot recover statutory damages, double, triple or even quadruple the commissions owed, unless they take the lawsuit as far as a judgment.
Even with these upsides, our firm’s approach is to settle cases without a lawsuit when possible, or to settle them quickly after filing suit by making the right legal maneuvers.
When required, however, we take cases to trial in order to prevail. Our firm took one of the first triple damages judgment awards in California, in 1998. Many other commission disputes since have resulted in awards of punitive damages to our sales rep clients.
How to Prevent Commission Payment Delays in the Future
Negotiate Clear Payment Terms in Your Contract
- Include specific deadlines, penalties for late payments, and reporting requirements.
Regularly Monitor Payments and Sales Data
- Seek to be on customer management software such as Sales Force to track sales, or keep detailed records of sales and commissions to catch delays.
Build a Relationship With Legal Counsel
- Retaining an attorney with expertise in the niche area of sales commission disputes is essential.
Conclusion
- Payment delays can often be resolved quickly, if acted upon quickly.
- State laws awarding penalty damages to sales reps who receive late commissions usually result in an Employer’s or Principal’s quick actions to rectify late payment.
- Contact our office to consult with an attorney for personalized advice on recovering unpaid or late commissions in your particular situation.
FAQs for This Article
If your commission payment is late, start by reviewing your contract, documenting the delay, and communicating with your Principal or Employer about it.
Don’t wait to take legal action if you are paid late. If your Principal or employer doesn’t resolve the issue immediately, consult with an attorney to evaluate your options.
Penalties for delayed commission payments are mandatory under the laws of some States, and discretionary under others. Anything from an award of your attorney fees, to double, triple or even quadruple the commissions owed are recoverable.
Proving commissions were paid late intentionally requires detailed records of sales, as well as quick communication about payment timelines and late payments.
The best contract terms to prevent commission payment delays state clear deadlines for payment (usually triggered by shipment, issuance of invoice, or payment of invoice), late payment penalties, and audit clauses to ensure compliance.
Table of Contents
