Commissions and Profit Sharing

The United States Court of Appeals for the First Circuit recently decided the Wage Act commissions case, Ellicott v. American Capital Energy, Inc., No. 17-1421 (1st Cir. 2018).  This case is interesting for a few reasons, but I’ll address two here. First, the losing defendants in this case argued that the salesperson’s commission plan, which was based on the profitability of sales he made, fell outside the Wage Act’s protections. Such a distinction has been made in some cases between commissions and “profit-sharing” plans, with the first being subject to Wage Act coverage and the latter outside its coverage and protections. Two cases making that distinction are Suominen v. Goodman Indus. Equities Management, 78 Mass.App.Ct. 723 (2011) and Feygina v. Hallmark Health System, Inc., 31 Mass.L.Rptr. 279 (2013). However, the First Circuit focused on the key elements of the Wage Act related to commissions, the “due and payable” and “definitely determined” requirements, and found that the commissions in this case met both. This case will be key for employees facing the employer defense that a commission will lose Wage Act coverage simply for having a connection to profits. I view this as an important win for employees with unpaid commission cases.

Next, the First Circuit examines the important doctrine of equitable tolling. This doctrine allows an employee’s claims to survive despite being outside the statute of limitations if an employer makes statements that it knew or should have known would lead the employee to delay filing suit and, in reliance on those statements, the employee delays. Here, the employer held meetings with the employee about the commissions and told him that money was tight but that he would be paid if he was patient. The jury found that the defendants “made representations [they] knew or should have known would induce [Ellicott] to put off bringing suit and [he] did in fact delay in reliance on the representations.” Without this finding, Ellicott’s lawsuit would have been too late, but the doctrine of equitable tolling of the statute of limitations saved his claims.

Just a reminder that the statute of limitations for Wage Act claims is three years.