There are a variety of different industries that use commissions as employee incentives, either by creating commission-only positions, or by adding the potential to earn commissions in addition to an employee’s regular salary. These positions can entail anything from selling cars to promoting pharamacuetical products to selling high-end properites, just to name a few.
Detailed Sales Agreements
In many cases, the company and the employee enter into a detailed, written agreement that defines the amount of and the circumstances under which an employee can earn a commission. In other cases, however, disputes may arise over an employee’s entitlement to sales commissions in certain circumstances that are not clearly defined by the parties’ agreement.
Therefore, it is important for any person taking a position that is based solely or even partly on commission to be aware of his or her legal rights in terms of collecting unpaid sales commissions, which may differ significantly according to the applicable state law and the agreement between the parties. It is common for an employee that is paid in whole or in part by sales commissions to have a written employment agreement that specifically sets forth the conditions under which a sales commission is earned, as well as the percentage or amount of the sales commission that can be earned.
Where no employment contract exists, however, or where its terms are unclear, evidence of other communications between the employer and employee may be relevant in determining whether the employer actually owes a disputed sales commission to the employee. For example, suppose an employee contacts his or her employer about a particular sales commission, and the employer indicates that it will not pay the employee the sales commission until payment is received from the purchaser. This could constitute evidence that no commission will be paid until the employer receives payment on the sale, even in the absence of an express contract provision to that effect.
State laws also may vary widely in terms of upholding or invalidating certain terms of an employment contract with regard to the payment of commissions. For instance, sales commissions disputes often arise when an employee has left his or her position with the employer, and is not paid his or her sales commissions as agreed.
Laws on Commissions
Some state laws prohibit an employer to withhold legally earned commissions because an employee has left his or her position. State laws may also differ in the area of severance agreements in terms of how sales commissions that are legally earned following an employee’s termination of employment are handled.
In any case, it is important that you keep any employee handbooks, employment contracts, and/or communications with your employer regarding the payment of commissions for evidence in the event of a dispute. Particularly if you are considering accepting a job that is compensated in whole or in part by commission, or if you are leaving a position that paid you a commission, you will want to have this information handy in case your employer does not pay you a commission that you have legally earned.
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