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 “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)).
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).
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.
If you’re a sales representative who is not being paid commissions, this video is for you. I’ll answer some frequently asked questions. My name is Aaron Hall. I’m a business attorney. I have regularly represented commissioned salespeople typically after they’re terminated from the company. Now, you typically see two different types of commission salespeople. One option is employees, the other is independent contractor. It’s important to figure out which you are right at the beginning because your rights are very different. Employees have all the rights of Minnesota employment law, right to prompt payment of wages, for example. There are plenty of other rights there. Then for an independent contractor, the sales representatives have a significant statute that gives them protection.
Let me explain to you why this statute exists. There was a problem. Manufacturers would hire independent sales reps to build the customer base, or maybe it’s pull in some retailers and establish relationships for the manufacturer. The manufacturer would say, “I’m not going to pay you anything right away, but you will get commissions over time while we have that relationship.” These independent sales reps would go out and establish business for the manufacturer, sometimes working months or years to get that business set up. Then once it got set up and it was thriving, the manufacturers said, “Thank you. Goodbye. I’m ending the relationship.” Now the sales representative would stop getting a commission from that relationship.
This became such a problem that the Minnesota legislature as well as legislatures throughout the United States established the Termination of Sales Representatives Act. It’s known by slightly different names throughout the United States, but what it does is it establishes a sales rep’s right to commissions. If they’re going to be terminated, it sets forth a process for how that termination should occur and notice that needs to be provided. In general, here’s how it works in Minnesota. A manufacturer can terminate for … By the way, it depends on the terms of the contract, but let’s assume it’s an automatically renewing contract. The manufacturer has to at least give six months’ notice that they intend to not renew the contract. If there is a breach of the agreement, the manufacturer needs to give 90 days’ notice to the sales rep in order to try to cure that breach. That means, in other words, that if the sales rep has failed to do something the manufacturer requires under the sales rep agreement, the sales rep has 60 days to try to cure or fix that issue in order to avoid the contract from not being renewed.
Now, what happens in a situation where a manufacturer just says, “You’re don. We’re terminating you. No notice period.” You as an independent sales rep for a manufacturer have significant rights in Minnesota. You have a right to have your attorney’s fees covered by the manufacturer. You have a right to commissions during the notice period, and you may have other rights as well. Often you need an attorney to assert those rights. They’re typically not going to be just offered by a manufacturer. I see pretty regularly that we need to do litigation in order to get the manufacturer to actually pay out. Often manufacturers are not aware of this important statute that was specifically designed to protect sales reps.
Now, there are a lot of details here that are important to look at. For example, it’s not just manufacturing reps. It’s sales reps who represent other types of businesses in the chain of distribution. There are other rules and restrictions on this. For additional information, see the link below. I’m Aaron Hall, attorney in Minneapolis.