Sales representatives, whether they are employees or independent contractors, are too frequently faced with situations where the businesses which owe them commissions refuse to pay them or refuse to pay them the full amounts owed. While, unfortunately, sales representatives do sometimes get beaten out of commissions which they are rightfully owed, sales representatives should take a hard look at their situations before giving up on receiving payment for sales commissions.
Here are some legal points for sales reps to consider when faced with a refusal to pay:
A VERBAL CONTRACT TO PAY COMMISSIONS IS ENFORCEABLE
We have had several cases over the years where a sales representative was not paid and where the refusal to pay was on the basis that there was no written agreement to pay or to pay the percentage which was claimed to be owed. In such cases, sales reps should bear in mind that an agreement to pay commissions does not have to be in writing. Under Tennessee law, oral or verbal agreements to pay commissions are just as enforceable as written ones. The problem with oral contracts is that people lie or, to be more euphemistic, they remember things differently.
The problem of the party who owes the commission remembering the parties’ agreement differently can sometimes be overcome by evidence of the parties’ course of conduct. For example, we had a case where a manufacturer claimed that it did not have a written agreement to pay its manufacturer’s representative commissions on pre-fabricated metal building materials. The manufacturer’s defense fell apart because our client had information on the total value of each sale he had made and he had copies of checks from the manufacturer which showed that, for over two years, he had been paid the percentage he claimed he was owed on all of the projects he sold. While most defenses don’t fall apart that easily, that case demonstrates how a course of conduct can make it difficult for a manufacturer, employer or other business to renege on the payment of sales commissions.
A sales representative who does not have adequate records in her possession, whether emails, invoices, or commission payment records, should bear in mind that, once a breach of contract case for sales commissions is filed, her lawyer will almost certainly be able to require the opposing party to produce that documentation. As well, subpoenas can be issued to customers for records related to what they ordered, what they paid, and when they paid it.
THE TERMINATION OF THE RELATIONSHIP AS A REASON NOT TO PAY
Once the relationship between the sales representative and the employer, manufacturer or other represented party is terminated, the commissions owed may not be paid on the grounds that no commissions are owed after the termination of the relationship. Contractual provisions which squarely provide that the former representative or employee is due no commissions after termination are common, enforceable and, often, result in the represented party owing no commissions after the termination of the relationship. However, in some cases, a sales representative or former employee can recover some commissions which were not paid before termination if he or she can show that the former employer, manufacturer or other represented business should have paid them before termination. Generally speaking, Tennessee courts will not allow a party to avoid paying commissions owed by stalling commission payments before a termination.
STATUTE OF LIMITATIONS ISSUES
In almost all cases for breach of contract for sales commissions to which Tennessee law applies, the six-year statute of limitations will apply. Sales representatives should keep in mind that, as a general rule, each discreet sale is subject to the six-year statute of limitations. So, in some cases, the recovery of some sales commissions may be barred because they were due more than six years before suit was filed, but the recovery for others that were due within the six-year period before suit was filed will not be barred.
If you believe that you are owed sales commissions, before you assume that you cannot recover them, you should consult with a Tennessee law firm experienced in representing sales representatives in sales commissions cases.