The Sales Person Didn’t Meet Criteria: Can We Forfeit Commission Payout?

This is a dilemma many businesses find themselves in, in fact, even when there are justifiable reasons for a business to consider forfeiting commission payout. The first reference for such a business would be the agreement in place regarding commission payout. This is why each sales contract should have clear terms defining the duties of a sales representative, their expectations, and those of the employer in relation to every aspect of the sale.

Basically, such a sales agreement should outline the terms and conditions of the sale, how commissions are calculated, any sales limitations, legal aspects that bind a business and the employee, among others. If an agreement is worded properly, businesses will have few problems when it comes to deciding what to do in case a representative doesn’t meet criteria. Besides, the salesperson will know in advance the risks or consequences of not meeting criteria.

However, there could be some legal aspects that a business may want to consider before making the final decision. These are with regard to the employment/labor law or any other statutes upheld in the region the business is operating that touch on commissions. In this case, a business might want to engage an attorney who will look at the sales agreement and the laws of the land then advice accordingly.

For instance, if you operate within Missouri, section 407.912.1 of the Missouri Annotated Statutes gives guidelines on how to determine when commissions become due for an ongoing and terminated sales contract. In subsection 1, it states that the written terms of the agreement between the business and salesperson will control how the due date of commissions is determined. In this case, the terms of the contracts should be clear about the dates the commission becomes due.

The 2nd and 3rd subsections delve further into a situation where there is no contract or the terms of the agreement are not clear about commission payout. However, one aspect that stands out in these two subsections is that commission payout is subject to delivery of service, acceptance by the purchaser and full satisfaction.

Here is a part of what subsection 2 of 407.912 states, “…the commission shall be paid when the product or service is delivered and accepted by the purchaser or the principal receives satisfaction in full.” The principal or purchaser, in this case, refers to the business that has hired a salesperson.

What are the legal risks associated with commission payout forfeiture?

It can be costly for a business to forfeit commission payout unlawfully. If a sales representative has earned their commission as indicated in the agreement and there are no complaints, it is important for businesses to pay in good time. Otherwise, it can lead to unnecessary legal battles which taint the image of an enterprise.  Besides, the business risks losing revenue as the court may order compensation for damages sustained by the sales person and extra charges for attorney fees.

Based on section 407.913 of the Missouri statutes mentioned earlier, a business which fails to pay commissions earned by a sales representative is answerable to the salesperson in a civil action for damages sustained, allowance for additional damages, and legal costs incurred. The representative can also demand additional payment just like they were still working and qualified for commission payout. The court will calculate such commission on a yearly pro rata basis beginning from the date their payment was terminated. However, the triumphant party is awarded the attorney’s fees and other legal costs.

Conclusion

Setting and disbursing sales commission payments has always been a delicate subject for many employers. Today, we have aggressive lawyers and some litigious salespeople who will leave no stone unturned when it comes to claiming payment for the services they offer. Different countries and states have varied provisions regarding commission payout. However, having a detailed contract between a sales representative and a business that considers prevailing laws can save both parties time and unnecessary lawsuits. Along with the detailed contract, an automated sales commission process using a software such as QCommission also allows the business to not worry about making accurate and timely payments.