Reading Commission Contracts: Your Unpaid Commissions Can Be Trebled Under the Massachusetts Wage Act

The Massachusetts Wage Act (“Wage Act” or “Act”) requires all earned wages to be paid within six days of the end of pay period. M.G.L. c. 149, s. 148. The Wage Act applies to commission payments as long as the commissions are “definitely determinable” and “due and payable” (i.e. as long as the payment in question is a commission, not a bonus (link). Id.  If your employer fails to timely pay your earned commissions, you could be entitled to triple damages, attorneys’ fees, and interest on the late payment. See DeSantis v. Commonwealth Energy System, 68 Mass. Ct. 759 (2007).

Commissions are “definitely determined” when they are arithmetically determinable – i.e., you can apply a formula to determine their value. See Okerman v. VA Software Corp., 69 Mass. App. Ct. 771 (2007). For example, when an employee is due 3 percent of the total of the sales he makes each month.

But how do you know if your commission is “due and payable”? In other words, how do you know if you have completed all the required conditions on your right to receive the payment? We turn to contract law for the answer. Commission claims are essentially contract claims with liquidated (trebled) damages attached to them. That means determining whether your commission is due under the Wage Act requires the application of contract law principles.

Interpreting Contract Terms

Courts interpret contract terms with the goal of identifying the intention of the parties at the time they entered into the contract. The court is not supposed to consider the subjective intent of the parties, but rather engage in an objective analysis – what would a reasonable person, having all the background knowledge the parties had at the time of contract formation, have understood the terms of the contract to be?

The court will first turn to the plain language of the contract itself. If the contract or provisions in question are unambiguous, the court will only look to the text of the contract to interpret the parties’ intent. This is known as the “four corners rule”.  A contract or provision is considered ambiguous if it reasonably susceptible to more than on interpretation. A provision is not ambiguous simply because the parties disagree as to its construction or urge alternative interpretations.

The court will generally interpret any ambiguous terms or provisions against the party who wrote or requested the inclusion of those terms. This is known as the principle of “contra prementum” or “interpretation against the draftsman”. In commission contracts, this is usually the employer. However, some contracts include clauses that eliminate this principle. And some courts will only apply contra prementum as last resort if other evidence fails to resolve the ambiguity.

The court will aim to interpret the contact in a commercially reasonable manner and not adopt an interpretation that produces an absurd result. The court will also attempt to analyze and give effect to the contract as a whole. If there conflicting terms in the contract, it will attempt to interpret those terms in a way that harmonizes them with the full contract.

Extrinsic (Outside) Evidence

If the terms of the contract are unclear or ambiguous, the court may allow the parties to introduce extrinsic (outside) evidence to help demonstrate the intention of the parties at the time of the contract formation. Extrinsic evidence could include: (1) witness testimony describing what they thought the contract term to mean; (2) emails or other correspondence discussing the contract terms; and/or (3) the past or current conduct of the parties (for example, how was your employer paying out your commissions before this dispute?). Extrinsic evidence is supposed to help clarify the meaning of any ambiguous words or terms in the contract. Surrounding circumstances or the relevant background of the contract formation might also be examined by the court. Note, extrinsic evidence is used to determine the intent of the parties at the time the contract was formed and cannot but used to later create an ambiguity in wording of the contract.

Integration Clauses

An integration clause is a provision in a contract that specifies that the written contract is the final agreement between the parties and overrides any other oral or written statement. This clause is intended to prevent parties from claiming that the contract doesn’t reflect their actual agreement. A typical integration clause will say something like “This Agreement is the entire agreement between the parties in connection with (the subject matter of this Agreement), and supersedes all prior and contemporaneous discussions and understandings.” Integration clauses are common in employment and commission agreements.

Except in cases of fraud or misrepresentation, the Parol Evidence Rule generally prohibits the court from considering extrinsic evidence if the contract contains an integration clause. Hallmark Inst. of Photography, Inc. v. CollegeBound Network, LLC, 518 F.Supp.2d 328, 331 (D.Mass.2007) (the parole evidence rule in Massachusetts “prohibits the introduction of extrinsic evidence to alter the terms of an integrated and complete written contract”); Starr v. Fordham, 420 Mass. 178, 648 N.E.2d 1261, 1268 (1995) (“[a]n integration clause in a contract does not insulate automatically a party from liability where he induced another person to enter into a contract by misrepresentation.”). If your commission contract contains an integration clause, it’s important that the language in the contract contains the full and complete agreement between you and your employer, including any verbal agreements. It’s also important to get any later modifications to agreement in writing. While the court might consider evidence of a later oral modification to an agreement, “the proponent of the oral modification must present evidence of sufficient force to overcome the presumption that the integrated and complete agreement . . . expresses the intent of the parties.” Hoffman v. Inc., No. CV 20-12224-PBS, 2021 WL 1858688, at *7 (D. Mass. May 10, 2021) (internal citations omitted) (emphasis added).

Unenforceable Terms

Just like in any contact claim, some terms of your commission contract might unenforceable (i.e. a “special contract” under the Wage Act). See Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63, 70 (2009) (holding that employers are precluded from “drafting contracts that place[] compensation outside [the] bounds” of the Wage Act). For example, a clause that requires you to be employed on the date your commissions are paid out, even if you completed all the work required to earn the commission before leaving the company, could be unlawful under the Act. See McAleer v. Prudential Ins. Co. of Am., 928 F. Supp. 2d 280, 289 (D. Mass. 2013) (holding that unless the contract specifies otherwise, “courts generally consider that the employee earns the commission and it becomes due and payable when the employee closes the sale, even if there is a delay in actual payment on the sale”) Your commissions are also likely still due to you if your employer unlawfully terminates your employment before your commissions are paid. See Parker v. EnernNOC, 484 Mass. 128, 134 n. 10 (2020) (“the [Wage] Act does not allow an employer to set a condition under which it agrees to pay wages to an employee and then make it impossible for the employee to satisfy the condition in an effort to evade its responsibility to pay those wages”).

Be sure to also review your commission contract for other common provisions that could impact your Wage Act claims—such as clauses requiring arbitration and choice of law provisions.

Employment contracts can be complicated, but if you believe your employer might owe you earned commissions, we offer free analysis of your potential claims. You could be entitled to triple damages and interest on the amount owed, plus your attorneys’ fees and costs for pursuing your earned wages. Please feel free to contact us at (617) 338-9400.

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