When is A Commission Due? (Updated)
UPDATE: The Maryland Court of Appeals has ruled that Maryland's Wage Payment & Collection Act (the "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, 372 Md. 28, 811 A.2d 297.
Timothy McCabe was employed by Medex as a sales representative and received both an annual salary and "incentive fees." At the outset of his employment, McCabe had received a copy of Medex's employee handbook, which specified that the "incentive fees" 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 "incentive fees" due the sales representatives for the year. Payment of the fees was scheduled for approximately two months after McCabe's termination of employment. Solely because of the timing of his resignation, McCabe did not receive the fees which totaled almost $33,000.
McCabe filed suit, alleging a violation of §3-505 of the 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 handbook 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.'" The Court of Special Appeals had agreed with McCabe that the "incentive fees" were commissions and reversed the trial court finding that McCabe "had satisfied all of the requirements for receiving a commission except one - he was no longer employed." It 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." On appeal to Maryland's highest court, The Court of Appeals held that under "the Maryland [Wage Payment] Act, an employee's right to compensation vests when the employee does everything required to earn the wages."
The Court of Appeals went on to hold that "[c]ontractual language between the parties cannot be used to eliminate the requirement and public policy that employees have a right to be compensated for their efforts." The Wage Payment Act defines the term "wage" as including "bonuses" and held that "it is the exchange of remuneration for the employee's work that is crucial to the determination that compensation constitutes a wage" under the Wage Payment Act. The court differentiated wages from other forms of compensation which are not directly tied to services, such as payments owed to an employee as a result of his optional participation in a profit sharing plan. Because the incentive fees at issue in the case were directly related to sales made by McCabe, the court concluded that such payments fell well within the ambit of wages under the Act.
The final issue considered by the court was the whether the employer would be liable for treble damages and attorneys' fees. The Act provides that a court may award up to treble damages and attorneys' fees to a successful employee-plaintiff unless the wages at issue were withheld as the result of a "bona fide dispute." 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 had concluded that the employer was not liable for the treble damages and attorney's fees. The Court of Appeals reversed on this issue, holding that although the appropriateness of an attorneys' fees award was properly reserved to the court, "the determination of a bona fide dispute and award of treble damages was for the jury."
Employers should review their compensation arrangements in light of this decision.
Prior to the McCabe decision, §3-505 of the Act was generally viewed as addressing only when an employee was required to be paid his/her final paycheck and preventing an employer from withholding money from an employee's paycheck without a signed authorization. The Court of Appeals' decision gives §3-505 substantive effect with respect to determining when commissions are considered to be "due" to 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.
An employer which withholds a commission from a former employee solely because the employee was not employed on the date the commission is otherwise payable, risks exposure to both treble damages and attorney's fees in the event of a suit under the Act. Moreover, putting the issue of treble damages in the hands of a jury increases the risk of a significant judgment against an unwary employer.
December 01, 2002