In a recent trial Court decision, Hon. J. Woodlock has grappled with an issue this office is finding more and more common. A sale is made, a commission is “earned,” it’s calculable and definite, but the employer places within the compensation plan a contingency, a technicality that must be met before the commission is payable. The Wage Act, arguably, does not give employers unlimited discretion to dictate when commissions are earned and payable — in fact, one could argue that the Wage Act limits that discretion in a meaningful way. See, http://bacelaw.com/blog/?p=88.
If the compensation plan includes contingencies prior to the earning of a commission, then those terms will likely be given deference by the Court
If the compensation plan attempts to modify the Wage Act, then those terms are likely unenforceable.
Drawing the line between the Wage Act and the creative terms employers place in sales contracts is no easy task. Here is the language from Hon. J. Woodlock’s recent ruling:
Commissions are due and payable when “any contingencies relating to their entitlement have occurred.” Sterling Research, Inc. v. Pietrobono, No. 02-40150, 2005 WL 3116758, at *11 (D. Mass. Nov. 21, 2005); Micciche v. N.R.I. Data & Bus. Prod., Inc., No. 09-11661, 2011 WL 4479849, at *6 (D. Mass. Sept. 27, 2011).
The Annuities Regional Coordinator Sales Compensation Plan does not specify precisely what contingencies must be satisfied to entitle McAleer to commission payments. It says only that “[a] percentage of variable annuities gross sales will be awarded monthly based on cumulative gross sales results.” The Complaint alleges that Prudential would delay payment on commissions earned until Prudential received the payment of the premium. When a compensation plan specifically sets out the contingencies an employee must meet to earn a commission, courts18 apply the terms of the plan, see e.g., Watch Hill Partners v. Barthel, 338 F. Supp. 2d 306, 307-08 (D.R.I. 2004), however, when the plan does not specify, courts generally consider that the
employee earns the commission and it becomes due and payable when the employee closes the sale, even if there is a delay in actual payment on the sale. See Micciche, 2011 WL 4479849, at *7; Sheedy v. Lehman Bros. Holdings Inc., No. 11-11456, 2011 WL 5519909, at *4 (D. Mass. Nov. 14, 2011); DeSantis v. Commonwealth Energy Sys., 864 N.E.2d 1211, 1219 n.12 (Mass. App. Ct. 2007). In Micciche, the court found commissions due and payable where the plaintiff closed the sales with a customer while he was still employed with the defendant company, but was terminated before the customer actually remitted payment. See Micciche, 2011 WL 4479849, at *3, *7. The court specifically stated, “[t]he significant delay in the remission of payment is attributable to the evaluation, and is not something for which a commission should be docked.” Id. at *3 n.7. Similarly, in Sheedy, where the incentive compensation was contingent on employment with the defendant employer for five years, but the employer went bankrupt during that five-year period, the court held that the plaintiff had earned a proportion of the incentive payment equal to the proportion of the five-year period she had worked before the bankruptcy and termination. Sheedy, 2011 WL 5519909, at *4.