A District Court Judge for the United States District Court in Massachusetts has recently held that an employer is liable to pay commissions to a former employee even though the employer’s commission policy provided that commissions were not due to an employee who resigned. The plaintiff in the case sought approximately $32,000 in unpaid wages and commissions that he alleged were unlawfully withheld from him in violation of the Massachusetts Wage Act, Mass. Gen. Laws ch. 149, §148.
The plaintiff was an employee at will, who was paid a fixed salary, plus a variable amount based on sales. The commission payment was due when an investor client of the company permitted the company to make certain investment decisions and was determined according to a written company policy. The employer had come to believe that the employee had not been truthful in his employment application about the reason for leaving his previous employer. The employer informed the employee that it planned to terminate his employment, but offered him the opportunity to resign instead.
The Wage Act provides that commissions that are “definitely determined” and “due and payable” must be paid an employee as wages. The Act also prohibits employers from imposing a “special contract” with an employee to exempt the employee from the protections of the Act. The Court concluded that the variable compensation in dispute constituted commissions that were “definitely determined” and “due and payable” once the employee left his employment, as the parties agreed on the precise amount that would have been paid for the months in question had the employee remained employed. The employee did the work to earn the commissions prior to his resignation, and the Court reasoned that it did not matter that it took some time for the employer to make the final calculation of the exact commission amounts. The Court ruled that the commissions were payable as wages under the Wage Act. The case is Israel v. Voya Institutional Plan Services, LLC, United States District Court, D. Massachusetts, decided March 16, 2017.
Employers need to be informed and deliberate in deciding whether commissions are payable to a terminated employee. An employer who fails to pay commissions earned at the time of termination can be held liable to the employee for the unpaid commissions, plus triple damages and the employee’s legal fees and costs, as provided for by the Wage Act.