Sales Commission Disputes - Lessons for the Sales Professional AND the Employer
by
James N. OToole on Mar. 08, 2017
Business Contract Employment Employment Contracts Lawsuit & Dispute Lawsuit
Summary: Kentucky law provides protections for both the sales professional and the employer in regards to sales commission disputes.
The Sales Commission Conundrum
Sales commissions are one of the ultimate win/win business arrangements. The commissioned sales person only gets paid if they actually perform, something that any good employer can appreciate. The problem usually occurs when the sales person is either too successful, or the sales person gets greedy and want more than their fair share.
As I learned my first day in law school - money makes people funny!
The Overly Successful Sales Professional
A sales person can be 'too successful' when they land that big contract with a supersized customer. Government military contracts, large automotive supplier 'needs' contracts, machine tool sales contracts, aerospace contracts, or even medical device contracts with large hospitals can fall into those categories. In many instances a sales person may earn as much or more in a given year than the owner or management executives of the company - and that is when the relationship can really get complicated.
When that happens, many times the owner or management of the company will seek to find ways to limit or even eliminate part of the commissions earned by the sales professional. When the relationship started the owner or manager would have been ecstatic to see the sales rolling in, however when it time to look at the profit and loss statement and the commission paid hits the bottom line, the ecstasy can turn to agony.
If you are a sales professional that has landed the 'whale' of a contract, and your employer doesn't want to pay you, you may find yourself in the unemployment line for doing too well. Your recovery will depend upon your terms of employment, whether you have a contract, and the actual specifics of how the customer was procured.
In Kentucky you have some protection under the wage and hour laws. KRS 337.010 provides in pertinent part that Wages include commissions and bonuses. KRS 337.055 provides that any employee that is discharged from employment shall be paid in full all wages earned by him no later than the next normal pay period following the date of dismissal or 14 days following dismissal - whichever is later. KRS 337.385 provides that any employer that pays an employee less than the wages to which the employee is entitled SHALL be liable for the full amount of such wages and an additional equal amount as liquidated damages, and for costs ans reasonable attorney's fees.
The liquidated damages provision in KRS 337.385 is a very effective tool to resolve any commission dispute in the early stages, and if the matter cannot be resolved the liquidated damages provide more than ample compensation for the wrongfully denied employee.
The Overly Greedy Sales Professional
Some greed int a sales professional can be a good thing. After all employers want their sales professionals to desire and strive for success. However, sometimes, the deal between the employer and the sales person just doesn't satisfy the sales person. It can be related to sales territory, products available to be sold, pricing issues, or even competitive products being offered by the sales person. There are several tools available to the aggrieved employer, each of which requires that the employee receive some form of consideration - or value- in exchange for the agreement.
THE NON-COMPETE
Kentucky honors and enforces non-competition agreements. Generally, a non-competition agreement will be enforced if it is valid and reasonable. Louisville Cycle & Supply Co., Inc. v. Baach, 535 S.W.2d 230, 232 (Ky. 1976) In order to be reasonable the non-compete must serve to protect the legitimate interests of the employer. This includes the employers interests in terms of geography, the length of time, and the type of work to be performed.
In terms of geography, a local company that only sells in Kentucky cannot prevent an employee from working and selling in that same industry outside of Kentucky.
In terms of time, an employer cannot keep the employee out of the industry forever. A reasonable time can be anywhere from 6 months to 5 years, depending upon the facts and circumstances of that case.
In terms of type of industry, an employer in Fayette County cannot prevent a person that sold ladders from going and working as a janitor at a school in Fayette County.
THE NON-SOLICITATION AGREEMENT
The favorite tool of the financial and insurance industry. The Non-Solicitation Agreement is designed to protect a companies customers from being poached by a former sales representative. Essentially the Non-Solicitation Agreement provides that a former employee cannot go to the companies current customers or potential customers and take them to his new employer. The courts will honor such agreements and if properly prepared they can be a very effective tool in preserving a companies customer base.
THE CONFIDENTIALITY AGREEMENT
A Confidentiality Agreement can provide for a duty by the former sales representative not to share sensitive company information like trade secrets, customer lists, proprietary processes or other secrets. By creating that duty, a company puts an enforceable burden on the former sales representative to protect this sensitive information that can be enforced in court.
Conclusion
Yes, money makes people funny - but there are ways to make sure that your interests are protected for both the sales professional and the employer. I will lead you with this adage - "Pigs get fat, but hogs get slaughtered." It is OK to desire wealth and to strive for it, however when you get too greedy - either as an employer or as a sales professional - you expose yourself to some serious and significant liability.
Sales commissions are one of the ultimate win/win business arrangements. The commissioned sales person only gets paid if they actually perform, something that any good employer can appreciate. The problem usually occurs when the sales person is either too successful, or the sales person gets greedy and want more than their fair share.
As I learned my first day in law school - money makes people funny!
The Overly Successful Sales Professional
A sales person can be 'too successful' when they land that big contract with a supersized customer. Government military contracts, large automotive supplier 'needs' contracts, machine tool sales contracts, aerospace contracts, or even medical device contracts with large hospitals can fall into those categories. In many instances a sales person may earn as much or more in a given year than the owner or management executives of the company - and that is when the relationship can really get complicated.
When that happens, many times the owner or management of the company will seek to find ways to limit or even eliminate part of the commissions earned by the sales professional. When the relationship started the owner or manager would have been ecstatic to see the sales rolling in, however when it time to look at the profit and loss statement and the commission paid hits the bottom line, the ecstasy can turn to agony.
If you are a sales professional that has landed the 'whale' of a contract, and your employer doesn't want to pay you, you may find yourself in the unemployment line for doing too well. Your recovery will depend upon your terms of employment, whether you have a contract, and the actual specifics of how the customer was procured.
In Kentucky you have some protection under the wage and hour laws. KRS 337.010 provides in pertinent part that Wages include commissions and bonuses. KRS 337.055 provides that any employee that is discharged from employment shall be paid in full all wages earned by him no later than the next normal pay period following the date of dismissal or 14 days following dismissal - whichever is later. KRS 337.385 provides that any employer that pays an employee less than the wages to which the employee is entitled SHALL be liable for the full amount of such wages and an additional equal amount as liquidated damages, and for costs ans reasonable attorney's fees.
The liquidated damages provision in KRS 337.385 is a very effective tool to resolve any commission dispute in the early stages, and if the matter cannot be resolved the liquidated damages provide more than ample compensation for the wrongfully denied employee.
The Overly Greedy Sales Professional
Some greed int a sales professional can be a good thing. After all employers want their sales professionals to desire and strive for success. However, sometimes, the deal between the employer and the sales person just doesn't satisfy the sales person. It can be related to sales territory, products available to be sold, pricing issues, or even competitive products being offered by the sales person. There are several tools available to the aggrieved employer, each of which requires that the employee receive some form of consideration - or value- in exchange for the agreement.
THE NON-COMPETE
Kentucky honors and enforces non-competition agreements. Generally, a non-competition agreement will be enforced if it is valid and reasonable. Louisville Cycle & Supply Co., Inc. v. Baach, 535 S.W.2d 230, 232 (Ky. 1976) In order to be reasonable the non-compete must serve to protect the legitimate interests of the employer. This includes the employers interests in terms of geography, the length of time, and the type of work to be performed.
In terms of geography, a local company that only sells in Kentucky cannot prevent an employee from working and selling in that same industry outside of Kentucky.
In terms of time, an employer cannot keep the employee out of the industry forever. A reasonable time can be anywhere from 6 months to 5 years, depending upon the facts and circumstances of that case.
In terms of type of industry, an employer in Fayette County cannot prevent a person that sold ladders from going and working as a janitor at a school in Fayette County.
THE NON-SOLICITATION AGREEMENT
The favorite tool of the financial and insurance industry. The Non-Solicitation Agreement is designed to protect a companies customers from being poached by a former sales representative. Essentially the Non-Solicitation Agreement provides that a former employee cannot go to the companies current customers or potential customers and take them to his new employer. The courts will honor such agreements and if properly prepared they can be a very effective tool in preserving a companies customer base.
THE CONFIDENTIALITY AGREEMENT
A Confidentiality Agreement can provide for a duty by the former sales representative not to share sensitive company information like trade secrets, customer lists, proprietary processes or other secrets. By creating that duty, a company puts an enforceable burden on the former sales representative to protect this sensitive information that can be enforced in court.
Conclusion
Yes, money makes people funny - but there are ways to make sure that your interests are protected for both the sales professional and the employer. I will lead you with this adage - "Pigs get fat, but hogs get slaughtered." It is OK to desire wealth and to strive for it, however when you get too greedy - either as an employer or as a sales professional - you expose yourself to some serious and significant liability.