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Patrick, Esq.
Patrick, Esq., Lawyer
Category: California Employment Law
Satisfied Customers: 7016
Experience:  Significant experience in all areas of employment law.
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My current California employer is refusing to pay me sales

Customer Question

My current California employer is refusing to pay me sales commissions on services sold, delivered and invoiced to my customer in 2012. My customer refused to pay their outstanding invoice balance due to their dissatisfaction with my employer's performance and quality of service delivered. My employer agreed to discount their bill by 30% and we received payment from my customer in February 2013.

My executed Sales Compensation Plan for 2012 states: "Commission rates are calculated based on the Gross Margin (“GM”% of the engagement, which is determined during the booking process and booked in CRM." Booking occurs after a signed contract is received from the customer

The plan also reads that:

"Commission is paid by the end of the month following the month in which any portion of the sale was billed, posted and funds collected, and are subject to adjustment"

Commission Adjustments. All commission payments are made only after fees from the Sales are actually earned, and funds collected, and are subject to adjustment based on the following:
Concession(s), oral or written, given to the customer prior to the earning event(s) for the sale;

My main question here on this board is "What is considered the earning event?" I understand that it's either when services were sold (contract signed) or services delivered and invoiced to the customer. My employer has not responded to my demand for payment and I am concerned that they will take the position that the "earning event" will be customer payment.

An interesting Note: Verbiage was added to the 2013 Comp plan to protect my employer from having to pay commissions when the gross margin changes due to non-payment or discounts. It reads as follows:

2013 Sales Plan - Commission Adjustments.
A change in the gross margin % due to customer non-payment or discounts for the unpaid balance of the Statement of Work.

Commission payments due from the above mentioned situation are payable under the guidelines of the 2012 sales comp plan.

I appreciate any advice here!
Submitted: 1 year ago.
Category: California Employment Law
Expert:  Patrick, Esq. replied 1 year ago.
Hello and thank you for entrusting me to answer your question. I am very sorry to hear about your troubles in receiving commissions.

Has your employer paid you nothing at all on this commission, or simply an amount calculated after the 30% reduction?

I very much look forward to helping you on this matter.
Customer: replied 1 year ago.

The have paid me nothing at all. I had to go to them 2 months after not receiving any payment on the discounted amount, and they expressed that they didn't feel that they owed me anything. When I sent an email last week, the VP of Finance's response was that given that they discounted the services, he had not been given any direction on how to calculate my commission. I responded with the sales compensation plan verbiage that I sent you and stated that this was all the direction he needed in order to calculate my commission payment.

Expert:  Patrick, Esq. replied 1 year ago.
James,

Thank you very much for your reply.

I don't see any basis to deny commission payment entirely. However, it would seem that the agreement supports calculating your commission based on the discounted bill, not the original invoiced amount.

I base this conclusion primarily on the following provision: "Commission is paid by the end of the month following the month in which any portion of the sale was billed, posted and funds collected, and are subject to adjustment."

At this point, the funds have been collected. The funds are also subject to adjustment because there was an "oral or written [concession], given to the customer prior to the earning event(s) for the sale.

Since the first clause I cited entitles employees to commissions only once the funds are "collected," the earning event (the event which trigger an obligation to pay) is intended to be the receipt of payment and not the invoice for the sale. To me, this is rather clear based on the language of the agreement.

Of course, this does not mean that your employer can "adjust" the commisison to zero, it simply would mean that your employer may calculate your commission on the basis of the reduced sum your employer actually collecting from this client. That is the only reasonable assumption to draw from this contract language.

Since vested commissions are a form of wages earned, an employee in your circumstance may file a wage claim with the Department of Labor Standards Enforcement to obtain this unpaid money. To file a wage claim with the DLSE, visit this link: http://www.dir.ca.gov/dlse/howtofilewageclaim.htm

I hope that this provides clarification.

Please do not hesitate to let me know if you have any questions or concerns regarding the above and I will be more than happy to assist you further.

If you do not require any further assistance, please be so kind as to provide a positive rating of my service so that I may receive credit for assisting you. Very best wishes to you and thank you so much for coming to Just Answer.
Customer: replied 1 year ago.
I appreciate your detailed reply with link to file a claim with the state of California. I am clear that I am only eligible for commission on the amount collected versus the amount invoiced. Given that the earning event is payment received, can they adjust how commission are calculated since the effective margin is zero for the company after the discount was applied? My position is that the sales plan states that the commission rate is calculated during the booking process. They are claiming that the margin is zero after discounts so they don't owe me anything.
Expert:  Patrick, Esq. replied 1 year ago.

James,

Thank you for your reply. To be candid, I don't believe your position is tenable. This is because your agreement states that "commission payments are made only after fees from the Sales are actually earned, and funds collected," and that this amount is "subject to adjustment" based on oral or written concessions concerning the amount the customer owes.

Since the commission is not earned until the customer pays, and since the amount the customer must pay is subject to reduction until they actually tender payment, it would make no logical sense and would be contrary to the express terms of your agreement to require that your employer calculate commissions based on a number that has not yet been finalized.

I don't believe the agreement is ambiguous in this respect. I realize that my conclusions are contrary to the position you are hoping to assert, but I trust that you will appreciate my desire to be honest rather than provide you with an inaccurate answer to your question for the sake of providing good news.

Again, please feel free to let me know if you have any further concerns. If I have answered your question, I would be very grateful for a positive rating of my service so that I may receive credit for assisting you.

Kindest regards.

Patrick, Esq., Lawyer
Satisfied Customers: 7016
Experience: Significant experience in all areas of employment law.
Patrick, Esq. and other California Employment Law Specialists are ready to help you
Customer: replied 1 year ago.

I appreciate your candid reply. When the plan states "commission payments are made only after fees from the Sales are actually earned, and funds collected," isn't the earning event a separate event from when the customer tenders payment ("earned AND funds collected" in the statement above)? Or are they meant to be one in the same?


 


Commission rates are determined when a project is booked. If my company delivers a service to a customer and the final margin of such service is less than what was booked, I am always paid a commission on the booked amount. In this same regards, I am not paid a higher commission when our final margin is higher than what was originally anticipated.


 


I understand that the commission amount can be adjusted to reflect the reduction in amount collected vs. amount invoiced, but how can the rate be adjusted when it the plan states that rates are determined when the project is booked? In this case, I booked this at a 40% margin and our plan states that my commission rate is 4% at such margin.

Expert:  Patrick, Esq. replied 1 year ago.
James,

Thank you for your reply. In reference to the provision you quoted in your second sentence above, you omitted the rest of the sentence, which seems to provide some critical context. The sentence in its entirety states:

"Commission Adjustments. All commission payments are made only after fees from the Sales are actually earned, and funds collected, and are subject to adjustment based on the following: Concession(s), oral or written, given to the customer prior to the earning event(s) for the sale"

I'm sure you'd agree it is impossible to know what has been "earned" on a commission if the commission is percentage of the invoice and the invoice has not been finalized. Since courts interpret contractual language according to the parties' presumed intent, and since it would be illogical to say a commission has been earned before the amount of the commission can be known, the presumed intent here is to consider a commission earned only when payment has been finalized. For this reason, I think any court would reject the position you are wanting to assert.

I hope I am understanding and responding to your concerns. Feel free to let me know if anything is still unclear.
Customer: replied 1 year ago.

Got it....thanks for your advice!!!

Expert:  Patrick, Esq. replied 1 year ago.
My pleasure. I am glad to have been able to provide this information. I hope that you will consider returning to Just Answer in the future shoudl you ever have other legal questions.

Best wishes.

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