Sales commissions are a type of payments made to sales agents, who complete certain sales or who meet specified sales quotas. Generally speaking, these are calculated according to a percentage of the deal that the salesperson completes.
An example of this would be how a car salesperson may get 15% of the final price. Some sales agents are paid solely through commissions, while others may receive a combination of commissions and hourly wages.
A sales commission agreement, or sales commission contract, is a necessary part of employment agreements for workers who are employed as sales agents or sales representatives. Sales commission agreements are commonly incorporated into an employment contract, and may cover terms such as:
- The parties involved in the contract, as well as their contact information and other identification;
- The amount or percentage they are to receive upon closing each sale;
- Monthly or weekly quotas that must be met in terms of sales volume;
- How long the employment will last; and
- Whether or not the salesperson will also be paid hourly wages.
There are many different factors used to determine sales commissions. Some of the most common examples include:
- Industry standards;
- The salesperson’s individual sales records from previous sales positions;
- The amount of sales volumes generated by the salesperson over the course of their current employment; and
- Geographic-dependent factors, such as the cost of living for a particular state or city.
Sales commission amounts are most commonly negotiated prior to hiring, and are then finalized into the sales commission agreement. The amount and agreement can usually be modified as the employee gains more experience in the sales department.
What Are Some Common Disputes Over Sales Commissions? What Are Some Remedies for Sales Commissions Disputes?
Sales commissions and sales commission contracts can be a common source of legal disputes. Because of the fact that an employee’s entire monthly earnings may depend on just a few commissions earnings, such disputes should be taken seriously and resolved quickly. Some examples of common sales commission disputes include:
- Employers failing to pay due commissions upon a completed sale;
- Coworkers taking credit for, or stealing, another salesperson’s commissions or sales input;
- Disputes regarding the rate or percentage of commissions;
- Various conflicts involving employment or sales commission contract terms;
- Violations of state or federal wage laws; and
- Cases involving discrimination, harassment, or other such workplace disputes.
An example of a common dispute would be when a salesperson is terminated after they have completed a sale. There is frequently a delay between the completion of the sale and the actual payment of the owed commission. Payment of sales commissions after termination often requires special attention and legal analysis, such as that provided by an attorney.
Legal remedies for disputes regarding sales commissions may include:
- Prompt payment of commissions amounts or unpaid wages;
- Adjustment of earnings percentages;
- Reinstatement to the previous sales position, if the salesperson was terminated; and/or
- Change of employment operations policies, especially if discrimination or other violations were a factor.
There are many types of sales which are often subject to specific federal and state laws. An example of this would be the sale and transfer of securities, such as stocks or bonds. Violations can often involve an investigation from a government agency.
It is important to remember that disputes regarding sales commissions are similar to breach of contract disputes. There is an agreement between the employer and the employee, as detailed by different terms within the sales commission contract. Should any of these terms be violated, it would be considered a breach of contract. As such, remedies for breach of contract may be considered when determining remedies for sale commissions disputes.
The most common of these remedies would be monetary damages; specifically, compensatory damages. Compensatory damages are meant to cover losses incurred by the non-breaching party, because of the breach of contract. The breaching party will pay an amount which replaces the loss.
Who Has a Legal Right to Sales Commissions?
Legal disputes may also occur regarding who has a legal right to sales commissions. In the example of an employee making a sale but then leaving their job, or being terminated, there are several factors that will need to be considered before making that determination. It is also dependent upon state laws, which can vary greatly.
A salesperson’s employment contract should be consulted as it will likely clarify the issue. The contract should include a clear statement of who is entitled to sales commissions, as well as any incentives or other circumstances that would impact an employee’s compensation. If no contract or clause exists, any communication involving the matter between the employee and the employer should be referred to. However, as it is considerably difficult to enforce such oral contracts, it is absolutely imperative to include such a clause in a contract.
Timing may also be considered when determining who has a legal right to sales commissions. Nonpayment of commissions could be an error caused by the timing of the employee’s leaving or termination. Some sales commission contracts clarify that employees are to remain employed post sale in order to receive their commission payments.
Once again, state laws differ regarding the subject. Some states will consider contracts claiming employees are only entitled to commission payments during employment as invalid. It is important to consult with an area attorney who can help you understand how your state’s particular laws may affect your case.
What If I Have a Dispute over a Sales Commission Agreement?
An example of a common dispute would be when the salesperson is paid less than the percentage for commissions than what is listed in their sales commission agreement. Again, breach of contract remedies will be considered, and may vary depending on whether such discrepancies are accidental or intentional. A clerical error would be the most likely example of accidental discrepancies.
Generally speaking, a monetary damages award will be sufficient compensation to the non-breaching party for lost earnings. In other cases, the discrepancy may be solved through the human resources or accounting department. It is not uncommon for employment contracts to include a clause which states that all issues must first go through the human resources department before any other action may be taken. This is referred to as exhausting all administrative remedies.
Another common dispute over a sales commission agreements involves issues with unpaid wages. Unpaid wages are a denial of the wages, salary, or benefits that an employee is entitled to receive. They are all forms of wage theft which occur when an employer fails to pay an employee what they are legally owed.
A sales commission dispute attorney is an employment lawyer who specializes in legal cases involving contracts and employment matters. They would be able to help you determine your next best step, and whether your employer has any processes in place that you would need to first pursue.
Do I Need a Lawyer for Assistance With Sales Commission Disputes?
If you are involved in a sales commission dispute, you should consult with a local contract lawyer as soon as possible. As a commissioned employee, it is imperative that your legal rights are protected and you receive the money you earned.
An experienced and local employment attorney can evaluate the facts of your case and provide you with guidance regarding how to best proceed with your legal claim against your employer. An attorney can also represent you in court, as needed, and work to get damages awarded to you.
If you are an employer with a sales commission dispute, an employment attorney can help you determine the workplace laws of your state. Additionally, an attorney can help you assert your legal rights as an employer.