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When has a salesperson legally earned a commission?

On Behalf of | Jan 10, 2023 | Commissions Losses

Salespeople in many industries, such as real estate and business brokering, rely on commissions for most, if not all, of their income. Because they may not have a guaranteed salary, they must work hard to close as many deals as possible. Unfortunately, sales professionals do not always get the commission they earned and the buyer and seller agreed to pay. Employers and other parties often try to get out of paying commissions to maximize profits.

One factor in whether a sales professional is owed a commission under the law is whether they have earned it — that is, whether the sale has progressed to the point that one or both parties are obligated to pay. Factors in determining this include:

  • The employment contract. The salesperson’s employment contract usually lays out the employer’s obligation to pay commissions — when it occurs and how much the salesperson is owed per sale. This is generally a percentage of the sales price. In most cases, the contract is the single most important piece of evidence in commission disputes.
  • The parties’ understanding. If there is no written employment contract, or the contract does not explicitly describe payment obligations, what the sales professional and their employer understood over the course of employment to be the arrangement often is the next best thing. Communications like emails, sales contracts, receipts and other relevant documents can help establish the implicit agreement between employer and employee.
  • State statutes. Depending on where the sale took place, state law could apply. For example, the Maryland Court of Appeals has held that an employment contract is invalid when it imposes commission payment conditions that are beyond the sales professional’s control, such as a requirement that the salesperson remains employed by the business to receive an earned commission.

The best way for a sales professional who is owed thousands of dollars or more in unpaid commissions to enforce their legal rights is to consult an attorney who is familiar with this niche area of the law.