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Commissions May Be Due A Former Employee

On Behalf of | Mar 13, 2019 | Employment Law

Under New Hampshire law, commissions are part of the wages due a former employee.  The New Hampshire Supreme Court in the case of Bryan K. Galloway v. Chicago-Soft, Ltd. has stated that a person employed on a commission basis to solicit sales orders is entitled to her commission when the order is accepted by her employer.  Her entitlement to the commission is not affected by the fact that the payment for those orders may be delayed until after they have been shipped.  This general rule may be altered by a written agreement of the parties or by conduct of the parties which clearly demonstrates a different compensation scheme.  An issue arises when the salesperson leaves the company and sales order are booked and accepted by her former employee, yet the orders were not shipped or paid for until after she left.   Company management may believe the former employee is not entitled to a commission since they never pay the salesperson until the customer pays and the customer did not pay until after the salesperson quit or was fired. The fact that a salesperson is not paid until the customer pays is often an issue of the timing of the payment and not whether the payment is due the former employee. The commission payment is obviously contingent on the customer paying, yet the commission may be due the former salesperson months after they quit to go to a competitor.

Employers need to be careful not to pay a new salesperson for  the same customer for a sales order booked by the former salesperson, only to later find out the company has to pay the former salesperson as well thereby paying double the commission for the same order.  A clear written commission policy needs to be established so that all employees that receive a portion of their pay through commission clearly understand when and how they are paid.  New Hampshire wage law requires employers to put in writing commission plan terms and conditions.  Absent doing so, an employer will have a difficult time explaining that the conduct of the parties clearly demonstrated that commissions are not paid to former employees for orders that while accepted during the employment, but were shipped and paid for after the employee left.

New Hampshire wage law provides a remedy through the New Hampshire Department of Labor or the state courts for a claim which would need to be brought within three years.  It may entitle the employee, upon success of the claim, to her reasonable attorney’s fees plus up to the doubling of the damages if the employer willfully and without good cause fails to pay the commissions within the timeframe required by the statute.

If an employer wishes to only have salespersons paid a commission for sale orders they book if the customer pays while the salesperson is still working there it should be put it in writing with each salesperson person signing a receipt acknowledging they have received the sales commission policy. However, if sales personnel stay employed longer than they wanted to in order to await the shipping and payment by the customer of a sales order, that could have the adverse effect of decreasing employee morale of all employees and if an unproductive salesperson is fired for a bad attitude which results in a wrongful discharge claim by that salesperson stating the firing was aimed at denying her the sales commission.  The situation then becomes a lose/lose for both employer and employee alike. The employer may instead decide it is prudent to clarify that sales commissions are only paid for sales orders booked by that salesperson so that the new replacement salesperson knows she is not getting a commission on all orders that are from a certain customer, regardless of what salesperson booked the order.

J. Daniel Marr is a Director and Shareholder at Hamblett & Kerrigan, P.A. His legal practice includes counseling businesses and individuals on a variety of legal issues and advocating on their behalf.  Attorney Marr is licensed and practices in both New Hampshire and Massachusetts.  Attorney Marr can be reached at [email protected].