While the Company may be free to discharge commissioned sales employees, the issue of what is due to them upon termination remains. Many employers take the position that since the business, and not the individual, originally procured the customers, the salesperson is not entitled to any further commissions. In Michigan, that can be a very risky position to take, especially since the salesperson made sales to the customers while servicing accounts and often one hundred percent of the salesperson's compensation is based upon commissions.
This issue is first governed by the common law in the State of Michigan. Case law dictates that a sales representative is entitled to recover his commission whether or not he has personally concluded and completed the sale, it being sufficient if his efforts were the procuring cause of the sale. Having procured the sale (not the business or the client), the agent gets the commission as long as the sale continues, unless the parties have agreed otherwise. So, the presumption under case law is that agents are entitled to even post termination commissions. If the parties have an agreement to the contrary, the court will hold that post termination commissions are not due to an agent. An agreement can be oral or in writing. In cases of oral agreements the court has looked at evidence to establish an agreement to pay for the life of the part. Commonly, there is no written agreement other than the Employee Handbook language, which is often silent on the issue of payment upon termination. Ultimately, a court will look to several factors -- evidence -- to determine whether the company has an obligation to pay the post termination commissions. This includes past practice with other agents who have left the employ of the company, the course of dealing and performance between the parties, whether intracompany transfers of accounts have occurred and if they have, whether the former agent continued to receive commissions or if the new agent received the commission, and whether there has been written communication between the company and the employees regarding commissions and termination payments. Certainly, a court could decide, based upon evidence, that the discharged employee is entitled to post termination commissions.
In addition to the common law claim for post termination commissions, Michigan passed a statutory remedy for sales representatives titled the Sales Representatives Commissions Act ("SRCA"). Under this law, which highly favors sales agents, sales representatives are entitled to compensation those sales for which they were the "procuring cause." The SRCA defines a "sales representative," a "principal" and a "commission" so broadly that many employers and their employees unknowingly come within the statute. The SRCA in turn provides the authority to bring a common law claim. Under the SRCA, commissions that become due after the termination must be paid within 45 days after the date on which the commission became due. If a claim is litigated under SRCA and the sales agent is successful, the principal is liable not only for the amount of the commissions found due, but also a penalty equal to two times the amount of commissions due but still unpaid, or $100,000, whichever is less, as well as reasonable attorney fees and court costs. Clearly, under the SRCA, terminated employees are entitled to receive the commissions for they sales they completed before their termination and the company must pay the commissions to them within 45 days of their termination. With respect to the employees' claim for post termination commissions, the terminated employees could file actions both under the common law and SRCA. If the court determines that the parties' agreement included a provision for post termination commissions based upon the evidence presented, the agents will be entitled to their commissions, the statutory penalty and a payment of legal fees.
Based upon the law, it is difficult to predict the employer's likelihood to successfully defend against a claim made by a terminated employee for post termination commissions. This is largely a factual issue. As always, even putting the company in a position to defend any such claims, let alone gauging the outcome of litigation, is not the preferred position. The best avoidance of litigation in this area is to carefully draft salesperson agreements to clearly outline the point of termination of commissions.
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