When is a Commission “Earned?” Check your State’s Department of Labor Regulations.
My law partner, Joe White, and I recently “attended” a video seminar discussing legal disputes surrounding commission agreements. Thank you to Strafford Publications for the webinar, and to our speakers, Natalie Koss and Brent Pelton.
Fried & Bonder has written on this topic before. But a few gems we took from our speakers are worthy of additional comment. First, some states have regulations that define when a commission is “earned.” As anyone who has been involved in a commission dispute knows, that is typically the central issue in the case. The commission plan or commission agreement usually defines when a commission becomes “earned.” Once “earned,” virtually all states prohibit employers from retroactively modifying a commission plan to reduce an employee’s commission; in other words, the agreed-upon commission, once earned, must be paid. Thus, commission cases usually boil down to interpreting the language of the commission or agreement. But in some states, like—Virginia, California, New York, and Texas—their State Departments of Labor have promulgated regulations that define when a commission is “earned.” In these states, generally, when an employee closes a sale and revenue is received, the commission becomes fully protected.
Second, the Fair Labor Standards Act (FLSA) may provide another pathway to recovery for commissioned salespeople. Many, if not most, commissioned salespeople are exempt from the FLSA’s minimum wage and overtime provisions. But, if a salesperson is not exempt, her pay must meet the FLSA’s minimum wage and overtime requirements. In a typical situation, a new hire will be allowed a draw as she ramps up her sales efforts. If the employee is not exempt from the requirements of the FLSA, that draw, and all subsequent draws and commissions, must meet the minimum wage requirements of the FLSA. If the employee is paying business expenses, and those costs cause her pay to dip below the minimum wage, they must be reimbursed. Moreover, if the commissioned sales employee is not exempt under the FLSA, the employer must consider and account for overtime pay. From an employer and employee perspective, determination of appropriate exemptions and an analysis of compensation against FLSA requirements are critical. Accurate record keeping is also critical for both employers and employees.
The law surrounding commission plans and disputes is complex. From the contract language to the FLSA to your Department of Labor, interpretation of what is owed to whom and when can be a confusing maze. Fried & Bonder routinely handles commission disputes for both employers and employees. If you have a question regarding your commission plan, right to commission or your defense to a claim, contact us.