Connecticut Supreme Court Reaffirms the Right of an Employer to Determine When Commissions Are Paid

employer signing docAs a general proposition, under Connecticut law an employer has the right to determine the wage that will be paid for work performed by an employee, subject to basic requirements such as minimum wage or overtime. For wages that are paid as commissions, this means that the employer determines in its commission plan both how commissions are calculated and when they are paid.  By accepting the job, the employee acknowledges the commission plan as the wage agreement between the employer and the employee.

These legal principles may be different in other states; for example, California law dictates that the right to a commission accrues at the time of sale.  But in Connecticut, the sales commission plan can establish when a commission is due and payable, including that  it may not be payable if the employee no longer works for the employer..  An example is the commission plan involved in the recent Connecticut Supreme Court decision in the case of Geysen v. Securitas Security Services USA, Inc., 322 Conn. 385, decided on August 9, 2016.  Under that plan, the plaintiff’s weekly compensation was a combination of a base salary and commissions flowing from security services contracts that the plaintiff had procured.  The plan stated that commissions would be paid to the employee when the customer was invoiced, but would cease with termination of employment (in effect, no residual payment of commissions even though the service contract remained active).

The plaintiff was terminated from employment, and sued the employer pursuant to the Connecticut statute for enforcement of unpaid wage claims, Connecticut General Statutes section 31-72.  The plaintiff argued that because he had made the sale and the customer would continue to pay invoices without any further work being performed by the plaintiff, the commissions should continue to be paid to him.  But the Supreme Court determined that the purpose of the statute is to allow collection of a wage that has been determined but has not been paid.  The statute does not determine the wage, which is left to the parties and their agreement. As the Court stated: “our wage payment statutes expressly leave the timing of accrual [of commissions] to the determination of the wage agreement between employer and employee.”

There is a public policy in favor of freedom of contract which allows an employer to design its sales commission plan.  For this reason, the Court also rejected the employee’s argument that his termination constituted a wrongful discharge because it violated a public policy of  “just compensation.”  The public policy is for payment of earned wages, which is implemented in Section 31-72.  There is no broader public policy mandating the terms under which sales commissions are accrued.  Since the plaintiff was an employee at will, his employment could be terminated, and his commission payments ended under the terms of the commission plan.

However, the Court did recognize a claim for breach of the implied covenant of good faith and fair dealing in implementing a sales commission plan, even for an at-will employee.  This claim requires the employee to prove not just that potential commissions would cease to accrue if he was fired, but additionally that his employer acted in bad faith for the purpose of depriving the employee of the commissions for which he had a reasonable expectation of payment.  In other words, an employee is allowed to state a claim that the employer’s termination action was specifically designed to cut off commissions that would otherwise have come due.

As a final caveat, although not discussed in the Geysen case, the courts and the Department of Labor have held that a sales commission plan must be clearly and precisely stated, so that an employee knows when commissions are earned and when they will be paid.  Ambiguities in a commission plan will construed against the employer which drafted the plan.