Too many employers play games with sales commissions. They delay payment. They use flimsy pretexts to withhold payment. They use accounting tricks to lower the amounts paid. They hold commissions over the heads of their salespersons to keep them in line.
Fortunately, Michigan law affords robust protections to sales professionals. Under the Sales Representative Commission Act (SRCA), an employer that fails to pay a commission when due is liable for damages—and double damages it the failure was intentional. Notably, no showing of bad faith is required. To be liable for double damages, the employer simply must have withheld money owed to the sales representative on purpose. In addition, a sales representative who is forced to sue to recover a commission is entitled to recover the legal fees expended in obtaining a judgment against the employer.
(Note: Though this post focuses on employment relationships, Michigan law regarding sales commissions applies equally to independent contractor and other agreements.)
What If an Agreement Does Not Specify When Commissions Are to Be Paid?
Whether unintentionally or by design, some sales representative commission agreements are not models of clarity. In particular, an agreement may not make it clear when payment of a commission to the sales representative is actually due. The SCRA addresses this common situation. Under the statute, past practices between the parties shall control, and if there are no past practices, then courts must look to industry custom to determine when payment is due.
To take a simple example, suppose a sales representative agreement does not specify when commissions come due, but the employer has always paid the salesperson's commissions 30 days after receipt of payment by a customer. In the event of a dispute, the salesperson could point to that past practice to establish the due date for any unpaid commissions. Likewise, if it is customary in the line of business at issue for commissions to be paid out 30 days after the customer pays, then this can be used to establish a due date even if there is no past practice between the parties.
Additionally, though written agreements are generally preferable, it should be noted that even oral commission agreements are subject to the SCRA. Furthermore, the statute provides that parties cannot waive the requirements of the SCRA. An employer is subject to the requirements of the statute even if the commission agreement purposes to waive them.
What Happens to a Salesperson's Commissions after Termination?
The SCRA also includes specific requirements for paying commissions when a salesperson's employment terminates. The employer must pay all commissions due at the time of termination within 45 days. And for any commissions that may come due after termination, the employer must pay within 45 days after the date the commission because due.
Post-termination commissions are a frequent point of conflict. Under Michigan law, a salesperson may recover a commission where his or her efforts resulted in a sale, even if someone else is the one to formally close the deal. This is called the "procuring cause" doctrine, and it applies where an agreement is silent on post-termination commissions. As one court explained, it is a "fair dealing" principle that "seeks to ensure that the manufacturer does not unfairly benefit from the opportunistic termination of a sales representative after he has procured a sale but before the sale is consummated."
Commissions are a sales professional's lifeblood. Michigan law provides substantial advantages to salespersons who have been denied the commissions to which they are entitled.
This legal blog is written by attorney Maxwell Goss. Max practices business litigation, with a focus on non-competes, trade secrets, shareholder dispute, and intellectual property.