When employees resign or are fired from employment, that is often the time that they may challenge their prior compensation or benefits, whether out of spite, greed or often because there is ambiguity. It is important to put employment terms in writing. Under New Hampshire Wage and Hour laws, all employment compensation and benefits must be in writing and provided to the employee. If there is a change in the compensation or benefits during the employment, it must be provided to the employee in writing prior to the change taking effect. For example, if an employee has a salary plus commission, the writing should explain whether or not there is a setoff for the salary prior to the commission taking effect. The written explanation of the commission should also specify various formulas of calculating the commission for the particular types of sales such as if the company has a lower percentage commission for house accounts. The company may also want to provide a lower commission if there is a change in the project that decreases the profit on the sale such as whether some of the products shipped are non-conforming and need to be replaced. If the company changes the sales commission formal written notice needs to be provided to the salespersons prior to the effective date of the commission change.
A big issue with commissions is what happens if the sale is booked in the company, yet the revenue is not received until after the salesperson has left the company. It is often the case that a company does not pay the commissions until the company has been paid. Nevertheless the right to the commission is vested when the sales order is accepted by the company unless there is an agreement or clear practice known to the salesperson to the contrary. The although the sales order may not be paid until months later when the product is shipped or services provided and paid for and therefore the timing of the payment is delayed until after the salesperson leaves and the commission payment remains contingent on the customer paying, the commission is not cancelled just because the salesperson is no longer employed when the sales order is paid. If another salesperson services that account and follows through with the shipping of the product and collection of the purchase price, absent a clear written commission formula, the company could be subjected to two claims; one from the existing salesperson who services the account and the former salesperson who may now works for a competitor.
Written compensation terms do not need to be signed by the employee, but it is very prudent to have that employee sign acknowledging receipt of it. That compensation information packet can also state in it that the employee remains an employee at will which means both the company and the employee can terminate the employment relationship with or without notice or with or without cause.
A compensation information packet can also provide details as to how vacation is earned and accrued. By way of example, if someone was to get 3 weeks’ vacation per year, does it accrue at the beginning of the year or does it accumulate over time per month. If accrued over time at a full-time work week of 40 hours the 3 weeks total 120 hours divided over 12 months so the monthly accrue would be 10 hours. Employers generally would not want to pay out to an employee leaving at the end of January 3 weeks of vacation pay. It is also important to address when the employee is leaving the company as to how many hours of vacation pay can the employee receive from prior years. If there is no policy, it is conceivable that someone can work for 5 years at a company, particularly if he is a salaried employee, and perhaps credibly claim upon leaving he never took any vacation time and make a claim for 3 weeks per year for 5 years; being 15 weeks of vacation. A written vacation policy can avoid that predicament for the company. The New Hampshire Department of Labor does not require vacation pay to be paid except if it is part of a policy or addressed in employment terms. However, if the specifics of the vacation policy is not in writing, the New Hampshire Department of Labor may agree with the employee that when there is a legitimate question of credibility between the employer and employee testifying at a hearing as to what was orally stated which could had been avoided by a writing, the employee should get the vacation pay.
In summary, a company’s failure to put in writing the specific compensation and employment benefit terms, in addition to being a violation of the Wage and Hour regulations, can result in an employee making a successful false wage or benefit claim against the company. If successful, under the Wage Statute the employee may possibly be awarded double the damages and get a reimbursement of his attorney’s fees. Further, a written compensation and benefits term signed by the employee may avoid a real ambiguity since both the employer and employee can refer to the employment compensation and benefit packet to refresh their recollections of the those terms.
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].