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Put Your Commission Agreements In Writing

Written by: Linda S. Johnson

The New Hampshire Supreme Court decided a wage case last year which clarified the basis on which a terminated employee is entitled to payment for unpaid commissions. While it may be common practice for many companies to automatically cut off entitlement to commissions as of the date of an employee's termination, the New Hampshire Supreme Court clarified that, absent a specific written agreement of the parties or conduct which clearly demonstrates a different compensation scheme, a terminated employee is entitled to be paid for commissions on all orders accepted by the employer even though payment is made after the date of termination.

In Galloway v. Chicago-Soft, Ltd., Mr. Galloway, a national sales manager for Chicago-Soft, was terminated on August 2, 1994. Thereafter, he filed a wage claim with the Department of Labor seeking, among other things, payment for commission on all orders solicited by him which had been accepted by the company. The company asserted that Galloway should only be entitled to commissions on sales collected through Galloway's termination date. The company pointed out that over the term of Galloway's employment, commissions were paid by the company only when the company was paid by its customers. This argument was unpersuasive to the court which commented that "such evidence is not clearly indicative of whether an agreement existed whereby Galloway earned commissions when sales were collected."

In ruling that Galloway was entitled to commissions on all orders closed by him prior to his termination, the court stated: "If an employer intends for commissions to be calculated differently, either the contract language or the employer's acts must unambiguously demonstrate a departure from the general rule; otherwise, the employee is entitled to commissions on sales." The court remanded the case to the Department of Labor for a determination of commissions owed based on sales closed as of the termination date even though subsequently collected.

As a result of the Galloway decision, all companies should take a look at their commission agreements and clearly commit to writing the exact basis on which commissions are to be paid, including whether or not commissions are to be paid post termination. Absent a clear and unambiguous agreement to the contrary (preferably signed by the employee), a terminated employee will be entitled to be paid for commissions on all orders accepted by the employer even though payment for the order may be made after termination.

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