California Court of Appeal Upholds Forfeiture of Commissions on Termination
by Post-termination payment of bonuses and commissions is a frequent subject of wage and hour claims in California. In Nein v. Hostpro, Inc., No. B199497 (June 3, 2009), the California Court of Appeal addressed this issue, affirming summary judgment in favor of the employer, holding that the plain language of an employment agreement barred the employee’s recovery of commissions after he was terminated. Because the employment agreement contained a carefully drafted, clearly defined commission plan, the Court found in favor of the employer. Had the agreement been ambiguous or less straightforward, it would not have been enforceable.
Case Overview
In Nein, an employee salesperson entered into an agreement with his employer which provide that he would be “eligible for commission pay as set forth in this [document], so long as [plaintiff] remains employed with the Company as a Sales Representative.” The employee and employer also agreed that the agreement could only be amended by a written agreement executed by both parties.
One and a half years later, the employer promoted the employee and the parties entered into a new oral agreement which provided that the employee would receive commissions of “20% of the up front costs’ revenues on all accounts” he brought in, either by his own efforts or through contacts. Thereafter, the employee brought a transaction to his employer. The employee was terminated eleven months later and the transaction was consummated less than thirty days later.
The employee was not paid any commission for the transaction. He filed suit against his employer, seeking payment of commissions under the agreement because the transaction occurred through his “contacts and efforts.” He also sued for violation of California Labor Code §2926 for non-payment of wages. The Court of Appeal disagreed.
Because the employment agreement stated the employee would be eligible for commission as long as he remained employed with the employer, the Court found only one reasonable interpretation of the agreement – “once plaintiff ceased to be employed by defendant, he would no longer be eligible for commission pay.” The written agreement precluded the employee from collecting additional commission post-termination.
Even though the Court observed that commissions are wages, for purposes of enforcing the provisions of the Labor Code, it found that the rights of an employee to commission depend on the terms of the contract for employment. Because the employee’s rights to commission were governed by the provisions of the agreement, he was not entitled to any further commissions once he was terminated.
In a footnote, the Court cautioned employers that, while a commission agreement would be enforced, where a contract provision is unconscionable, it will not. Because the employee did not plead unconscionability, the Court did not consider it.
What This Means to Employers
Disputes over commission payments are commonly brought by employees after termination. Employers who compensate their employees with commission payments should re view their plans and agreements. A well-drafted commission agreement will be enforced even if it bases payment on continued employment.
