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Texas Supreme Court To Texas Employers: Employee Sales Commission Agreement Terms Better Be Clear Or Commissions Could Be Owed Long After Employee Terminated – Employee Benefits & Compensation

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The Texas Supreme Court recently established a “default
rule” which, as the dissent puts it, may “threaten the
expectations of Texas at-will employers and employees who have
agreed to a commission structure but, for whatever reason, failed
to reduce it to writing with perfect clarity.” Perthuis v.
Baylor Miraca Genetics Lab’ys, LLC
, No. 21-0036, 2022 WL
1592587, at *12 (Tex. May 20, 2022). Based on century-old opinions
concerning real estate broker commission agreements, the
Perthuis majority opinion held that an at-will employee
who receives a commission as part of her compensation must continue
to receive commissions on sales consummated long after the
employee’s termination if (1) she was the
“procuring-cause” of the sales, and (2) the commission
agreement between the employer and employee “is silent about
any exceptions” to that default rule. Id. at *1.
Moreover, that employee can establish she was the “procuring
cause” by proving that she “set in motion a chain of
events … which, without a break in their continuity, cause the
buyer and seller to reach agreement on the sale as the primary and
direct result of the [employee]’s efforts.” Id.
at *9 (internal quotations omitted).

The agreement at issue in Perthuis provided that the
plaintiff employee was due a commission of “3.5% of [the
employee’s] net sales.” Id. at *1. The agreement
did not define “net sales” or “place any other
parameters on the commission obligation.” Id. Prior
to the employee’s termination, he had negotiated a contract
amendment with one of the employer’s largest customers which
substantially increased the customer’s minimum purchase
requirements moving forward. Id. at *2.The employer
subsequently refused to pay any further commissions to the employee
on sales to that customer finalized after the employee’s
termination, and the employee sued for breach of contract.
Id. At trial, the jury was instructed that the
employee’s “net sales” included those for which he
was the “procuring cause” – resulting in a jury
award of over $1 million in damages and interest. Id. The
court of appeals reversed and rendered judgment for the employer,
(1) finding that nothing “in the parties’ agreement …
indicates that [the employer] agreed to compensate [the employee]
for sales from customers he had ‘procured’ even after”
the employee’s termination, and (2) rejecting employee’s
argument that the “procuring cause standard applies in
determining all sales commissions.” Baylor Miraca Genetics
Lab’ys, LLC v. Perthuis
, 639 S.W.3d 108, 117 (Tex.
App.—Houston [1st Dist.] 2020). The Texas Supreme Court
disagreed – holding that the “procuring-cause
doctrine” provides a default rule for any “agreement to
pay a commission on a sale” that does not contain terms that
“are inconsistent with the default rule.”
Perthuis, 2022 WL 1592587, at *6.

So what are the terms that Texas employers should add to their
sales commission contracts if they wish to avoid the
procuring-cause doctrine? The Court held there is no “magic
language” required – any language that is inconsistent
with the doctrine suffices. For example, the contract could deny
the payment of commissions from sales that close after termination
of employment or limit commissions to a specific period following
termination of employment. Id. As the Perthuis
dissent warned, in the absence of such language, Texas employers
run the risk of suits brought by at-will employees for commissions
“for any sale” they “set in motion” and will be
“stunned to learn that, under the default rule, the
entitlement to commissions may extend years after their
employment relationship ended.” Id. at *12.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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