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Can a Company Refuse to Pay Commission?

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Although the federal Fair Labor Standards Act (FLSA) does not apply to the payment of commissions, the Maryland Wage Payment and Collection Law does. To win, you will need to prove that there was a commission agreement or understanding between you and your employer, and that you performed all of the necessary work.

The Maryland Wage Payment and Collection Law

Like the FLSA, the Maryland Wage Payment and Collection Law requires the timely payment of remuneration to employees. The Maryland statute, however, requires the payment of all of the following forms of remuneration:

  • Regular wages;
  • Bonuses;
  • Commissions;
  • Fringe benefits;
  • Overtime wages; and
  • Any other promised (and legal) remuneration.

Payment of Commissions after Termination of Employment 

Some Maryland employers attempt to avoid liability for the payment of commissions by simply terminating the employee before payment comes due. Some of these employers take it a step further by including a clause in an employment contract that requires the employee to “remain employed with the company” in order to receive commissions.

This wording is so subtle that you might miss it even if you make a point of reading your employment contract before you sign it. It doesn’t matter, however – under Maryland law, such a clause is considered void as a matter of public policy. What that means in practice is that a court will strike out the clause and demand that your employer pay the commission. Your employer must pay by the next scheduled payday, even if you are terminated.

I Have Done Everything I am Personally Required to Do to Earn the Commission. Am I Entitled to Payment? 

Yes. In fact, the only issue concerning your eligibility for payment is whether or not you have completed all of the tasks necessary for earning the commission as contemplated in your employment agreement. This can be tricky, however, if the employment agreement or employment practices are ambiguous concerning what exactly the employee must accomplish to earn a commission. It is also tricky when it comes to the finality of sales.

Verbal Agreements and the Statute of Frauds

Verbal agreements are generally enforceable in the state of Maryland (as well as other jurisdictions). In most cases, the major obstacle in enforcing a verbal agreement, such as an informal employment agreement, is not a matter of the legality of the agreement itself, but the ability to prove that a verbal agreement was made in the first place and what its terms are. The employer’s customary practices can be used as evidence, however.

Nevertheless, under the Maryland Statute of Frauds, certain types of agreements must be in writing to be enforceable, including:

  1. Promises made on the condition of marriage.
  2. Agreements to pay someone else’s debt (a guarantor agreement, for example).
  3. Any agreement that cannot, under its own terms, be performed within one year (such as a two-year lease agreement).
  4. Sales of goods for the price of $500 or more, unless the goods are made-to-order and difficult to sell to anyone else. 
  5. The sale of real estate.

Obviously, the latter two items are especially likely to be relevant in a commission payment dispute. Make sure to insist on a written agreement in advance in such cases. 

Damages

An employee who does not receive his commission by the time of the employee’s regular payday may file a civil lawsuit against his employer, regardless of whether he is still working for that employer at the time the lawsuit is filed. If the court agrees with the employee, and if it finds that the employer’s refusal to pay was not made in good faith, the employee can collect three times the amount due, plus attorney’s fees.

An employee who did not receive a commission that was due to him because the employer discriminated against him based on race, nationality, gender, age or another protected category, or as a means of retaliating against the employee for filing a good faith employment claim against the employer, might also have a discrimination or retaliation claim.

Courtroom Precedent

In 1999 the Court of Appeals of Maryland decided a case in which a mortgage officer had been guaranteed a certain percentage of the fee for the closing of each loan. The mortgage officer had left the company after turning over all of his files relating to the loans that he had developed. The loans were not finally approved until after the employee had already resigned.

The court ruled that, since the loans had been eventually approved, and since the employee had performed all of his role in securing the loans, he was entitled to the commission (as well as treble damages and attorney’s fees).

Hypothetical Example 

  • Sam, an RV salesman, negotiates two sales that would apparently entitle him to two $1,000 commissions according to the terms of his sales contract, which guaranteed him “five percent of the value of each sale.” Unfortunately, Sam is laid off the next day. The day after Sam is laid off, the auto dealership’s finance department refuses to finance one of the purchases and the sale is canceled. 

The auto dealership denies Sam his commissions on the grounds that (i) Sam is no longer an employee of the dealership, and (ii) financing was rejected for one of the sales, thereby canceling the sale. The dealership submits evidence proving that the financing decision was made in strict accordance with written company standards. 

Sam’s lawyer argues that, since financing was not Sam’s responsibility, he completed all of the tasks necessary to earn the commission in both sales. The dealership responded that the word “sale” in Sam’s employment contract meant final sale, on the reasoning that only a final sale would generate the income with which to pay the commission.

The court rejects the dealership’s argument that Sam’s termination absolved the dealership from liability for commission. It agreed with the company concerning the meaning of the word “sale” and awarded Sam $3,000 plus attorney’s fees for the one loan that had been approved (but not the other one) since there was no bona fide dispute over the sale for which financing had been approved. 

Now Is the Time to Act

The sooner you assert your claim, the more likely it is that you will achieve an optimal outcome. The same applies if you are an employer defending against such as claim. Call Smithey Law Group at (410) 919-2990 or contact us online. We serve clients in Annapolis, Baltimore, Columbia, Dundalk, Frederick, Germantown, Glen Burnie, Rockville, Silver Spring, and Waldorf.