What to Do When Your Employer Refuses to Pay Your Commissions
Introduction
- There is nothing more frustrating than not receiving commissions required by an Employment Contract after months or years of hard work cultivating or soliciting sales.
- As frustrating as it may be to not receive earned commissions, it is a common problem for Company sales reps, especially in manufacturing sectors.
- Continue reading below for a step-by-step guide to recovering unpaid commissions, from self-help strategies to legal remedies.
Common Reasons Employers Refuse to Pay Commissions
Disputes Over Sales Attribution
- When Employee salesmen have non-exclusive territory provisions, Employers may claim that others (e.g., coworkers or management) contributed more to the sale.
Contractual Ambiguities
- Ambiguous or missing action provisions in contracts can lead to misunderstandings about commission entitlements.
Termination Before Commission Payout
- Employers sometimes terminate company sales reps to avoid paying commissions for ongoing sales that will last for years or even decades.
Claims of Breach of Contract by the Rep
- Employers sometimes create a pretext for termination, citing an alleged breach of contract by the sales rep as justification for withholding commissions.
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Immediate Steps to Take When Commissions Are Withheld
Review Your Contract
- Start with a contract review. Usually signed contracts are tucked into a drawer and not seen for years. Sales reps must first understand the terms related to commissions, before communicating with their Employer.
Document Everything
- Collection of evidence is essential. Accumulate emails, orders, invoices, commission accountings and other communications about the sales process.
Communicate Directly With Your Employer
- Address the issue cordially and professionally with your Employer, requesting a meeting or sending a written inquiry.
Send a Formal Demand Letter
- If communication with the Employer does not work, hire an attorney to prepare a demand letter, including a Statement of what is owed and a deadline for resolution. For added leverage, the letter should include penalties under State Law.
When to Escalate the Issue
If an Employer Still Fails to Pay, 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 take the next steps if needed.
If Attorney Involvement Does Not Resolve the Dispute, Pursue Mediation
- Mediation is a settlement conference with a retired judge or an accomplished attorney. The parties present their case and the mediator tries to find a settlement to which both parties will agree.
- Mediation can keep a dispute from becoming a lawsuit, and has resulted in some of the largest ever settlements for our sales rep clients.
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 by a certain time and award penalties if not timely paid.
Legal Protections for Sales Reps
State-Specific Laws on Unpaid Commissions
- Most industrial States offer strong protections, such as penalties, when sales commissions are not paid on time by an Employer or Principal.
Federal Laws and General Protections
- The Fair Labor Standards Act (FLSA) generally prohibits unfair business practices.
- The Uniform Commercial Code (UCC) sometimes establishes contracts between sales reps and Principals based on correspondence.
How to Avoid Issues With Unpaid Commissions in the Future
Negotiate & Draft Clear Contract Terms
- Include specific and protective language on commission calculations, payment timelines, termination, and post-termination payments.
Stay Proactive With Documentation
- Collect emails, meeting notes, customer contact logs, orders, invoices, commission accountings and other communications about the sales process.
Build a Relationship With Legal Counsel
- Retaining an attorney with expertise in the niche area of sales commission disputes, as explained above, is essential.
Conclusion
- Unpaid commissions are frustrating. Luckily, they can be recovered quickly with the right strategy. Sometimes penalties can also be collected.
- Delays can weaken a case because documentation gets destroyed, witnesses forget facts, and leverage sometimes is lost unless quick action is taken.
- Our attorneys are experts in this field of law. They know how to push the right buttons to get an upper hand in these disputes. This usually results in settlement.
FAQs for This Article
If an Employer or Principal refuses to pay commissions, review your contract, document everything, and communicate directly with them. If unsuccessful, escalate the issue with legal help.
Calculating commissions owed should be based on the compensation terms in your contract, and the sales data. The information should then be used to create a spreadsheet.
The best legal options if an Employer or Principal won’t pay commissions owed is pursuing mediation, arbitration, or a lawsuit (depending on your contract and State laws).
Commissions for sales after termination are recoverable IF a contract includes provisions on post-termination commissions, or if there are no provisions addressing post-termination commissions, and you can prove you were the procuring cause of the sales at issue.
The length of time in which to file a claim (the Statute of Limitations) varies by State. Generally it is 4 years from the date a breach was discovered on a written contract; and 1 to 2 years from the date a breach was discovered on an oral contract.
Many States have specific laws imposing penalties for unpaid commissions to Employee sales personnel, as well as independent sales reps. Federal protections may also apply.
The best way to avoid commission disputes in the future is to negotiate strong contract terms from the inception, and then to maintain thorough documentation in case you need to make a case for unpaid commissions to your Employer or Principal (or a Judge).
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