A Contract May Eliminate An Employee’s Ability To Collect Commissions After Termination Of Employment
In a recent California Court of Appeal decision, the Court affirmed a contract permitting the employer to decline to pay a commission to a former employee, even though the work generating the commission was completed before the employee was terminated. In Nein v. HostPro, Inc., the employee salesperson had a contract providing for a salary plus commissions. The contract also provided that the employee would be entitled to the commissions so long as he remained employed as a salesperson by the employer. The employee alleged that he arranged a $12 million transaction between his employer and AT&T, but was terminated a month before the transaction closed.
The Court of Appeal held that the plain language of the contract precluded any contract claim for the commission. The Court also rejected the former employee’s claims for breach of the California Labor Code and for violation of California’s Unfair Practices Act, reasoning that those statutes could not create liability beyond the scope of the employment agreement.
The lesson for both employers and employers is to ensure that the employment agreement reflects a mutual understanding of when a commission is due and whether commissions will be paid to former employees.