Sales Rep Commissions: Employee Legal Rights to Wages in Minnesota | Attorney Aaron Hall

Sales Rep Commissions: Employee Legal Rights to Wages in Minnesota

Sale representatives paid on commissions have significant legal rights in Minnesota. This article explains the legal protections available to sales representatives who are employees in Minnesota.

To determine your rights, you first need to determine whether you are an independent contractor or employee. If you are an independent contractor (not employee), you may have protections under the Minnesota Termination of Sales Representatives Act. You should also know that, regardless of what your boss calls you, the law determines whether you are an employee or independent contractor.

The following information is for employees who serve as sales representatives in Minnesota and are paid on commission or a similar performance compensation plan.

Can an employer fire a sales rep to avoid paying commission?

No. An employer may not terminate a commissioned employee shortly before a deal is closed simply to avoid paying the commission. Gunderson v. North American Life & Casualty Co., 248 Minn. 114, 78 N.W.2d 328 (1956). However, an employer may terminate a commissioned employee shortly before a deal is closed for other good faith reasons, even if the effect is the employer avoids paying a commission. See Reiter v. Recall Corp., 542 F. Supp.2d 945 (D. Minn. 2008) (holding that the sales representative had no right to a commission because the commission contract provided that commissions are earned when payments are received).

When are sales reps owed commissions?

Sales representatives are entitled to prompt payment of wages and commissions, especially when they are fired or quit.

The date payment is due to you depends upon whether you quit or were terminated.

1. If you quit, your wages must be paid by the next payday. However, if the next payday is less than five days after last day of work, the employer may pay you on the following payday or 20 days after last day of work, whichever is earlier. See Minn. Stat. § 181.14.

2. If you were terminated, your wages must be paid immediately. See Minn. Stat. § 181.13.

Is it okay for a contract to say the commission is only earned after payment is received?

Yes, that contract term is enforceable under Minnesota law. Whether a commission is earned is generally determined an agreement between the parties. See Reiter v. Recall Corp., 542 F. Supp. 2d 945 (D. Minn. 2008) (enforcing a contract providing that the sales representative was not entitled to a commission when payment was received after termination).

However, three other legal doctrines may apply.

Unjust enrichment

Unjust enrichment “allows a plaintiff to recover a benefit conferred upon a defendant when retention of the benefit is not legally justifiable.” Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 838 (Minn. 2012).

However, relief under the doctrine “cannot be granted where the rights of the parties are governed by a valid contract.” M.M. Silta, Inc. v. Cleveland Cliffs, Inc., 616 F.3d 872, 880 (8th Cir. 2010) (quoting U.S. Fire Ins. Co. v. Minn. State Zoological Bd., 307 N.W.2d 490, 497 (Minn. 1981)).

Promissory estoppel

Regardless of any written agreement, if an employer promisses to pay commissions after an employee’s termination, the terminated employee may be entitled to those commissions under the doctrine of promissory estoppel. See Fiebelkorn v. IKON Office Solutions, Inc., 668 F. Supp. 2d 1178, 1186 (D. Minn. 2009) (enforcing the employer’s promise to pay commissions if the sales representative helped transition the accounts to other sales representatives before leaving).

Procuring cause

Like unjust enrichment, Minnesota recognizes the “procuring cause doctrine.” If a commission agreement is silent as to post-termination commissions, a sales representative is entitled to commissions on a sale finalized after employment termination as long as the sales representative originally “procured” the sale.