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As a high-level executive, your compensation likely includes commissions tied to revenue-generating deals. But what happens when your employment ends before you receive payment? The Texas Supreme Court has held that employers must honor earned commissions even after termination. This decision underscores the importance of clearly worded commission agreements and provides key insights for executives navigating post-termination payouts.
At Gardner Employment Law, we understand how to recover unpaid commissions for executives and professionals. If your previous employer owes you unpaid commissions, contact us.
How Does Your Employment Agreement Affect Your Right to Commissions?
Your employment contract will determine whether you can claim commissions after termination. If your agreement includes specific terms outlining commission payments after departure, those terms govern your right to recover commissions owed. In such cases, a breach of contract claim may be your strongest legal recourse.
However, even if your contract is silent on post-termination commissions, you may still have a legal claim under quantum meruit. This legal principle allows professionals to recover compensation for services rendered if:
- Your work directly benefited the employer
- The employer knowingly accepted your contributions
- You had a reasonable expectation of payment because of the employee’s efforts.
As explained more fully in the Perthuis case below, if your contract does not specifically require you to be employed at the time commissions are paid and your work was the procuring cause of the sale generating the commissions, you are entitled to your commissions even after you leave.
As the Texas Workforce Commission says, “The advice to have a clear, signed written wage agreement applies with particular force to commissions.” Make sure your contract contains clear terms regarding how your commissions are earned, when and under what circumstances they are paid, and what happens to unpaid commission payments after the final pay period.
The Perthuis case clarifies the frequently contentious issue of unpaid commissions. Note, however, that this clarification does not deviate from the existing case law on unpaid commissions. In “Unpaid Commissions,” we explain that Texas law says that an employee can get unpaid bonuses or commissions even without a contract. This applies if:
- You did the work,
- Did not resign, and
- Get fired for cause
Are You Entitled to Unpaid Bonuses or Commissions After Leaving Your Job?
For many executives, commissions and bonuses constitute a major portion of total compensation.
However, employers often attempt to deny these payments after an employee departs. Whether you are entitled to post-termination payouts depends on several factors, including:
- The specific language in your employment agreement
- Your company’s commission plan and written policies on commission and bonus payments
- The plan’s definition of when a commission is “earned”
- Any remaining duties required to finalize the sale
Bonuses, like commissions, are not always discretionary. If your bonus was promised in exchange for your services, it becomes a legal obligation for the employer to pay you the bonus that you earned. Even if you were terminated before the official payout date, you may still be entitled to a prorated bonus based on the period you worked.
Texas Supreme Court’s Opinion in Perthuis
In Perthuis v. Baylor Miraca Genetics Laboratories, a Vice President of Sales and Marketing had secured a $42 million contract. Days before the deal was finalized, his employer/employee contract was terminated, and his employer refused to pay his 3.5% commission—totaling $960,000. The Court ruled in Mr. Perthuis’ favor, emphasizing that unless an employment contract explicitly conditions commission payments on continued employment, those earnings cannot be withheld.
the Texas Supreme Court explained that commissions must be paid if the employee is entitled to them based on the “procuring cause” of a sale. Simply put, if your efforts directly led to a contract’s execution, you are legally entitled to the commission, even if you are no longer employed at the time of payment.
The key takeaway? The contract language controls. Make sure that your contract does not contain wording that you must be “employed” to be paid commissions.
If your contract does not require you to be actively employed before your employer must pay commissions, you are entitled to payment of commissions even after you leave – so long as your work was the procuring cause of the sale. Employers cannot retroactively impose conditions that were never part of the written agreement.
Let Us Review Your Employment Contract
Commissions can be a complicated matter. If you are unsure about the terms of your commission or if there are any unpaid commissions, contact us as soon as possible.