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Claims for unpaid wages, commissions, overtime

Trilogy of Wage Act cases bolsters employees’ rights to receive sales commissions, even after their employment terminates either voluntarily or involuntarily. Ignorance of Wage Act law is not a valid defense.

Beginning with a Massachusetts Supreme Judicial  Court decision in 2011 and through a recent US District Court decision in March of 2017, there is a compelling trilogy of cases that bolsters employees’ statutory right to receive sales commissions, even after their employment terminates either voluntarily or involuntarily. The Massachusetts Wage Act applies to employers who fail to promptly pay commissions, even if the employer’s decision is misguided rather than outright unscrupulous. Mandatory treble damages and attorney’s fees are recoverable.

The first case in the trilogy is Awuah v. Coverall North America, 460 Mass. 484 (2011). The Massachusetts SJC affirmed that an employer’s duty to promptly pay commissions begins once the employee performs the work required of him and the commission amount is readily calculable. E.g., the sales person persuades the customer to sign a contract and the commission rate is mathematically determinable as 5% of gross sales. The employer’s duty to pay commissions is not contingent upon when third parties such as the employer’s customers get around to paying the employer.

The second case in the trilogy is McAleer v. Prudential Insurance, 928 F. Supp. 2d 280 (D. Mass. 2013). After the employee was terminated for cause, he sued for commissions from sales that he generated during his last months of employment. The Prudential plan provided that commissions: (1) would be paid on a delayed basis; (2) would only be paid to individuals who were employed in good standing at the time of payment; and (3) would not be paid to those who resigned or were terminated for cause. The court ruled that Prudential had no lawful justification for withholding commissions earned prior to the end of employment. The court also rejected Prudential’s argument that the commission plan gave it the discretion not to award commissions, saying that the terms of the plan gave Prudential discretion in the administration of the plan, but not the decision whether to award the commissions at all. Otherwise, the discretion would be so broad as to render the commission plan meaningless.

The third case is from March 2017, Israel v. Voya Institutional Plan Services, LLC. This involved a former employee who was given the option of resigning or being fired for misconduct. The employee resigned, but sued under the Wage Act for payment of his commissions. The court rejected the company’s defense that the commission plan specifically provided that employees who resigned were not eligible to receive any further commissions. Once the commissions were “due and payable,” with their amount “definitely determined,” Judge Allison Burroughs held that the employer could not refuse to pay the commissions.

Voya was also unsuccessful in arguing that a variable compensation is not a commission because it is based on an ongoing stream of revenue, rather than a one-time sale. The court ruled that an employer shall not treat compensation based on a stream of revenue differently when the compensation is otherwise structured like a commission. The commission payments are supposed to reward the employee for work that he did to successfully persuade the customer to use Voya’s services. “[T]o decide otherwise would be to permit, even encourage, employers to evade the law by imposing lengthy delays on the payment of commissions and conditioning the payments on continued employment. Indeed, in this case, the amount that Israel stands to lose is determined entirely by the length of time that Voya delayed payment; if Voya had imposed a six-month lag on commission payments, for example, then Israel would have potentially lost six months’ worth of commissions. It does not appear that the Wage Act permits an employer to withhold commissions in such a manner, and the Court will not sanction that approach.”

Pamela A. Smith
Law Office of Pamela A. Smith
233 Needham Street, Suite 540
Newton, MA 02464
617-969-2900

pam@pamsmithlaw.com

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