Unpaid Sales Commissions in Massachusetts

The Massachusetts Wage Act, which provides plaintiffs with triple damages and attorneys’ fees for successful unpaid wage claims, also applies to commissions. M.G.L. c. 149, s. 148 states:

This section shall apply, so far as apt, to the payment of commissions when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due and payable to such employee.” In other words, if your commission can be calculated and is due under the terms of your employment contract, your employer must pay it to you or he is breaking the law and is subject to stiff penalties. In our practice, we find that unpaid commissions are one of the most commonly-violated parts of the Wage Act.

Why do employers fail to pay commissions in these cases? In some instances, employees do too well and significantly exceed their sales targets. Other times, employers fail to pay owed commissions because of cash flow problems. Disputes may also arise as to whether the commission is actually owed because the employer claims that the employee did not fulfill a requirement or left the company before the commission became due and payable. Some employers in these cases go so far as to manipulate their employee’s commission accounts to avoid payment.

One strategy that some employers use in an attempt to avoid mandatory payment of commissions (and, in the litigation context, triple damages for non-payment), is to characterize commissions as discretionary. The idea is that if the commission is entirely at the discretion of the employer, it is not “due and payable” until the employer exercises that discretion and decides to pay, much like a fully-discretionary bonus. For this strategy to work, however, the courts have made clear that the contract governing the commissions must be unequivocal that the commissions are in fact entirely discretionary.

A federal decision from the District of Massachusetts addressed this issue directly. The court determined that the Wage Act applies even to commissions that the employer characterizes as “discretionary.” In McAleer v. Prudential Insurance Company of America, the plaintiff-employee sued for commissions owed under a plan that granted his employer, Prudential Insurance, significant discretion in making factual determinations and calculations, and evaluating eligibility of his sales for commissions. The court ruled that the terms of the plan did not really give Prudential a blank check in determining whether it would pay commissions or not. To interpret the contract in that manner, the court determined, would be to “render the plan meaningless.” The hefty remedies provided for in the wage act therefore applied in the case.

Whether commissions in a given case are “due and payable,” and whether the Wage Act applies, therefore comes down to the contract: Do the terms of the employment contract make the commissions entirely discretionary? Or, does the employee in fact earn his commission upon the happening of some event or other factor defined in the contract? Often, especially in the case of smaller employers, a commission agreement is hastily and inexpertly drafted. Among other things, such a contract may not be “integrated,” meaning that evidence of practices and understandings outside the four corners of the contract can be used to determine what the contract really means. Even if a contract is “integrated,” there can be many ambiguous provisions and disputes surrounding them. Some common important provisions are:

• a clause requiring arbitration of a dispute;
• choice of law provisions, which may seek to avoid the application of Massachusetts law;
• windfall provisions or caps on commission;
• definitions of the trigger event that gives an employee a right to a commission (for example, a signed purchase order, or income actually received by the company);
• determination of the date that the commission becomes payable;
• what happens to commissions in the event that the employee leaves the company;
• type of sales that are included in the employee’s commission base.

There can be many points that require analysis in a commission case, and employment contracts can be complicated. If you believe that your employer owes you earned commissions, however, the matter is always worth investigating because of the possibility of triple damages is a huge incentive. In all but the most complicated situations, we will spend our time for free to analyze potential unpaid commission cases, so feel free to contact us at 617-338-9400 if you think you may have a case.