The Texas Supreme Court recently upheld a judgment awarding an executive $1 million in commissions that the employer had refused to pay due to the employee’s termination. In this article, we examine the ruling and explain why the executive’s commissions should have been paid after his termination.
At Gardner Employment Law, we help clients recover unpaid commissions. If you need expert advice regarding your contract or your commissions, contact us.
Texas Supreme Court Rules That Terminated Employees Can Receive Commissions
In Perthuis v. Baylor Miraca Genetics Laboratories, the Texas Supreme Court held that terminated employees should be paid their commissions if their work was the “procuring cause” of the contract with the customer. The employee is owed the commission when “a purchaser [was] produced through [the employee’s] efforts, ready, able and willing to buy the [product] upon the contracted terms,” the Court explained.
This is a landmark case in employment law, as the procuring cause doctrine historically has primarily applied to real estate transactions. The doctrine provides that if the employee “procured” the sale, then that employee deserves the sales commission even after a termination. You might ask what an employee must do to “procure” a sale. The situation must satisfy three factors:
- A written agreement between the employee and employee created during the employment relationship that provides for commission payments to the employee upon a sale.
- The parties must not have taken any action that would displace the procuring cause doctrine, such as breach of contract or a requirement in the contract that to receive commissions payments the salesperson must be employed at the time.
- The employee must be the “procuring cause” of the sale, or the person who caused the sale to occur.
In the Texas Supreme Court opinion, the justices emphasized that employers certainly may condition the payment of commissions on continued employment. But that condition must be clearly stated in the contract. If employment contracts do not explicitly contain this condition, then the employee can recover commission payments (even if the sale was not finalized until after the termination).
This case is important as it clarifies the frequently contentious issue of unpaid commissions. Note, however, that this clarification does not deviate from the existing case law on unpaid commissions. As we discuss in “Unpaid Commissions,” Texas state law holds that an employee who does not resign or is not terminated for cause is entitled to payment of bonuses or commissions that were earned but not paid.
If a company terminates an employee without cause, that employee is entitled to, at a minimum, a pro rata amount of earned commissions for the portion of the year worked. If you are unsure about this and whether the procuring cause doctrine applies to you, consult an expert lawyer with experience in the field of commission contracts.
Facts in the Perthuis Case
Mr. Perthuis was the Vice President of Sales and Marketing for the healthcare company, BMGL (Baylor Miraca Genetics Laboratories). Mr. Perthuis’ contract stipulated that he would receive 3.5% in commissions for his sales of the company’s services, performing genetic tests in its laboratories. The contract also provided for bonuses, in addition to his commissions. Although Mr. Perthuis’ bonuses were conditioned on his continued employment with BMGL, the employment contract notably was silent on that condition and commissions.
In 2017, Mr. Perthuis negotiated a long-term supply contract with a customer that led to a contract for $42 million. In a matter of days after the contract was in place, BMGL fired Mr. Perthuis. The next day after his termination, the $42 million contract was signed. The Texas Supreme Court ordered that BMGL pay Mr. Perthuis his 3.5% commissions amounting to $960,000 (plus post-judgment interest).
The Critical Fact in the Perthuis Case
The key to the Court’s decision that led to this large payout was that Mr. Perthuis’ employment contract did not require him to be employed in order to be paid his commissions. “Had BMGL intended continuing employment to be a condition for Perthuis to receive commissions on sales that he had already procured, then it would have been simple to have said so,” the Court stated. Due to this omission and the fact that Mr. Perthuis had produced a customer who was ready, willing, and able to purchase BMGL’s services, the company legally owed him the commissions earned (even after his termination).
Courts will not rewrite the parties’ contract. As the Supreme Court explained, “no one can inject additional provisions” into a contract between private parties. Thus, you should have an expert contract lawyer who has experience in drafting and negotiating contracts to review any employment contract that your employer presents for you to sign. Something that may seem simple, but in fact contains details that are complicated, is likely to cause problems. As the old saying goes, “The devil is in the details.”
Check Your Contract for Information on Commissions
With this clarification on unpaid commissions, it is especially important to review your employment contract. Review your contract to determine whether it contains written commission conditions that can make or break your earnings. As the BMGL case shows, what is unstated can be as important as what is stated in contracts. Review your commission plan to see whether there is a condition of continued employment. This means that you must be employed to receive any commission payments. If not, your former employer may owe you money on any sale that you procured but did not finalize until after you left.
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 they are earned, when and under what circumstances they are paid, and what happens to unpaid commission payments after the final pay period.
Let Us Review Your Employment Contract
Commissions can be a complicated matter. If you are unsure about the terms your commission or if there are any unpaid commissions, contact us as soon as possible.