When Is A Commission Due?
The Maryland Court of Special Appeals, in a decision issued on December 4, 2001, held that Maryland's Wage Payment & Collection Act prohibits an employer from conditioning payment of a commission upon an employee's still being employed on the date the commission was payable, where the commission was otherwise due and payable. McCabe v. Medex, 2001 Md. App. LEXIS 193.
Timothy McCabe was employed by Medex as a sales representative and received both an annual salary and commissions. At the outset of his employment, McCabe had received a copy of Medex's employee handbook, which specified that all commissions were "conditional upon meeting targets and the participant being an employee at the time of actual payment. If the participant does not meet both of the requirements, he or she is not eligible to receive payment."
McCabe voluntarily resigned his employment shortly after the completion of Medex's 2000 fiscal year, but prior to the calculation of the commissions due the sales representatives for the year. Payment of the commissions was scheduled for approximately two months after McCabe's termination of employment. Solely because of the timing of his resignation, McCabe did not receive commissions totaling almost $33,000.
McCabe filed suit, alleging a violation of §3-505 of Maryland's Wage Payment and Collection Act. See Md. Labor & Employment Code, §3-505. That provision addresses the payment of "wages due" following an employee's termination of employment and states:
Each employer shall pay an employee or the authorized representative of an employee all wages due for work that the employee performed before the termination of employment, on or before the day on which the employee would have been paid the wage if the employment had not been terminated.
The trial court found for Medex, interpreting the foregoing language as requiring an employer to "only pay those wages which are due and that 'incentive pay is not due until all of the conditions for its payment are met.'" (emphasis is original).
In reversing the trial court, the Court of Special Appeals found that McCabe "had satisfied all of the requirements for receiving a commission except one - he was no longer employed," but held that "the statute under consideration … clearly states that the employer must pay the employee for wages earned before the termination of his or her employment." The court considered the commissions to have been earned prior to McCabe's termination of employment, as McCabe had "completed all of the tasks required of him …[and] … there was nothing more he could have done to facilitate the receipt of his commissions" and "his employer, nevertheless, placed an additional consideration upon payment," i.e., employment through an "arbitrary date … wholly unrelated to the completion of the employee's duties."
The court went on to state that Medex's contention that the requirement of continued employment was an enforceable contractually established condition on payment of the commissions was foreclosed because the condition conflicted with the public policy underlying §3-505 and, thus, the contractual requirement was invalid. In support of this holding, the court stated that "Labor & Empl. §3-505 clearly states that an employer must pay an employee for all wages earned prior to the termination of his or her employment…" (emphasis added).
Recognizing that "this issue was hotly contested at the trial level and the considerable amount of analysis required in arriving at [its own] decision," the Court of Special Appeals concluded that Medex was not liable for the treble damages and attorney's fees that are recoverable upon a finding that an employer has "withheld the wage of an employee in violation of [the Wage Payment Act] and not as a result of a bona fide dispute."
Prior to this decision, §3-505 was generally viewed as dealing solely with the matter of when an employee was required to be paid his/her final paycheck. The Court of Special Appeals' decision gives §3-505 substantive effect with respect to determining when commissions are considered to be "due" a terminated employee. According to the court, commissions are "due" if they have been earned, and commissions are earned when the employee has performed all the services required of him as a condition for payment. If a commission is considered "due" under this line of reasoning, an employer is not free to contractually condition payment on the employee's being employed as of the date payment would have otherwise been made.
We think the case was wrongly decided and should be appealed. If the decision is not appealed or is upheld upon appeal, an employer that withholds a commission from a terminated employee solely because of the employee's failure to be employed on the date the commission is otherwise payable, risks exposure to both treble damages and attorney's fees in the event of a wage collection suit. In any event, an employer seeking to condition the obligation to pay incentive compensation upon an employee's continued employment may wish to amend its compensation policy or agreement to expressly provide that the incentive compensation payment serves a dual purpose; it rewards the employee's achievement of specified results and it is intended to secure the employee's services through a prescribed date. Such action arguably distinguishes McCabe on its facts and provides the employer with a basis to contend that the compensation at issue cannot be considered either "due" or "earned," unless the employee remains employed through the scheduled date of payment.