In many states, earned commissions are considered wages due when an employee quits or is fired. A few states, however, allow commissions to be forfeited if the written contract contains a forfeiture clause. Your right to commissions upon separation comes down to state law, the language in the written contract, and whether the commissions are earned.
Some states have final paycheck laws requiring that employers pay out earned commissions upon separation, regardless of how the employee left the company. Though the state may regulate how and when earned commissions should be paid, what constitutes earned commissions is determined by the content of the written contract.
For example, commissions may be deemed as earned if, prior to your termination date, you made a sale and the customer received and paid for the goods. At this point, commissions become wages due.
If you started a sales transaction but upon your termination your employer is still awaiting payment from the customer, the commissions may be regarded as unearned. An employer with a contractual stipulation stating that the employee must be employed when the sale goes through in order to receive commissions might be in violation of state law. If the sale is completed after you leave the company, your employer may be required to pay your commissions immediately thereafter, or within a certain number of days.
The state might require that commission agreements be put in writing and signed by both parties. According to the website of Andrea W. S. Paris, an attorney in California, the decision as to whether you have a right to commissions is typically made on a case-by-case basis and the interpretation of the contract. For example, you might not be due commissions if the written contract says you have no right to commissions earned after a certain number of days following your separation date.
If the written contract does not define "earned commissions," state law decides whether commissions are earned. In New York, this process involves examining the history between the employer and employee. If there are no prior dealings between the two, the commissions may be considered earned when the salesperson brings forth a buyer who is willing, able and ready to enter into a sale with the employer.
When there is a verbal agreement to pay commissions, state law determines whether commissions are due upon separation. For example, according to the website of The Nacol Law Firm, a law firm in Texas, certain promises to pay commissions must be made in writing. If a written contract is not legally required, oral contracts may be permissible, but the plaintiff has the burden of proving that an oral agreement was made.
Draws Against Commissions
If you received partial or full advances against future commissions, payback terms for the draws should be stated in your commission agreement. State law may forbid your employer from deducting draws from salary or wages, as the draw is an advance against only future commissions. When you leave the company, your employer may be allowed to offset draws only against commissions that you are owed.
Many states have deadlines for when final wages, including earned commissions, should be paid. For example, in California:
- If you quit and gave at least 72 hours of notice, or were fired, all commissions earned before your termination date are due immediately upon your separation.
- If you resigned without giving at least 72 hours of notice, earned commissions are due within 72 hours of your termination date.
- As a general rule, if your commissions are unearned at the time of your separation, your employer must pay them immediately after they become earned.
If state law does not have due dates for commission payments, standard practice is that they should be paid within 30 days or by the next regularly scheduled payday, following your separation date. Your written contract should state the frequency of commission payments.
If your employer refuses to pay your earned commissions, you may file a wage claim with the state labor department or a private lawsuit. In the latter case, you can contact an attorney to see if you might be entitled to not only unpaid commissions, but also damages and attorney fees.