Employer’s Policy Entitles Former Employee to Commissions

June 5, 2015

A recent decision by the Wisconsin Court of Appeals confirms that when it comes to earning and paying commissions, words really do matter. In a May 12, 2015 opinion, the Court of Appeals signaled that a commission policy for employees may not function exactly as the employer intends if the language fails to clearly state when commissions are earned. In Stetzer v. Northern Repair and Welding, a former employee, Stetzer, sued Northern for commissions on sales he made while employed by the company. Northern contended that it did not owe Stetzer the commissions because Stetzer was not an employee when Northern received payment for the subject sales. Northern argued that the provisions of its commission agreement with Stetzer sufficiently set forth the principle that only “employees” were entitled to be paid commissions and that at the time the commissions would be paid out, Stetzer had already resigned. In support of its argument, Northern pointed to a provision for splitting commissions, noting that it would be split among “all who make a combined deal, employees only.” The Court rejected Northern’s arguments and held the words “employees only” applied only to splitting commissions and was insufficient to deny the former employee a commission on a sale that was made while he was still employed.

As Northern learned, employers should review their commission agreements and policies to ensure the provisions will function as intended. For example, if a policy is designed to have employees accrue commissions only if they are employed at the time the customer pays its invoice, it must unmistakably indicate that intent. Simply including the words “employees only” may not nullify a former employee’s right to a commission, especially if the reference is not clearly applicable to all earned commissions. Not only should employers check the timing outlined in their agreements and policies, but also who is eligible to earn commissions.  It may be advisable to specifically note that former employees are no longer eligible to earn commissions on any transactions completed after the employee’s last day.  However, employers should also consider whether such a policy is prudent, as it may remove the incentive for employees to make sales in their final days or weeks of work.

If you have any questions about how the information in this article may affect you or your business, please contact Peter Richter at prichter@stroudlaw.com or (608) 257‑2281 or your Stroud attorney.

DISCLAIMER: The information in this article is provided for general informational purposes only, is not necessarily updated to account for changes in the law, and should not be considered tax or legal advice.  This article is not intended to create, nor does the receipt of it constitute, an attorney-client relationship.  You should consult with your own legal and/or financial advisors for legal and tax advice tailored to your specific circumstances.