If you as an employer pay any of your employees on commission, a recent Texas Supreme Court case makes it clear that your commission arrangement needs to be in writing.
The Court decided Perthuis v. Baylor Miraca Genetics Laboratories LLC in May 2022. In that opinion, the Court addressed the question of when a former employee has to be paid commissions collected by the company after the employee has left the job. In this case, the Texas Supreme Court determined that Brandon Perthuis, the former vice-president of sales at the company, would be entitled to a commission on the largest sale in the company’s history, even though he was terminated the day before the client signed the sales contract (but four days after Perthuis finalized the negotiations for the sale).
The Court reviewed the commission pay agreement and found that it was silent on whether the employee would get paid commissions after his employment was terminated. In the absence of a clear agreement, the Court followed the “procuring-cause doctrine,” meaning that if the employee was the reason the sale was procured, then he was entitled to the commission.
Perhaps the most important part of the Court’s opinion for any company that pays commissions is this: The procuring-cause doctrine provides nothing more than a default, which applies only when a valid agreement to pay a commission does not address questions like whether the right to a commission extends to sales closed after the employment relationship ends.
The procuring-cause doctrine is not a judicially created “term” for commission contracts. It does not add anything to a contract or take anything away. It does not restrict parties’ ability to modify their contractual relationships and it does not change the law governing whether parties have entered into such a relationship in the first place. Parties certainly may condition the obligation to pay a commission on something other than procuring the sale—they need only say so.
So the Court is saying that the company and the employee can negotiate any kind of commission pay agreement that they want. Or the company can just offer a commission arrangement and the employee can accept it. The courts will only intervene if your commission agreement is not in writing or if your written commission arrangement is silent as to an important term.
So what should a written commission pay arrangement include if any employee is paid fully or partly on commission?Continue reading Commission Pay Arrangements in Texas