Make Sure Your Sales Commission Agreements Discuss Post-Termination Compensation

What happens to commissions due a salesperson if they are terminated or quit? That was the question that Mark Dietrich and his former employer Bell, Inc. have been fighting over in Michigan Federal Courts since he was terminated in May of 2011. In the case the court ruled the contract entitled Mr. Dietrich to commissions on accounts he procured for two years from each customer's contract start date. The case of Dietrich v. Bell identifies many of the issues involved in sales compensation agreements and gives yet one more reason why you should have these agreements reviewed by an attorney.

Here's a summary of my employer tips gleaned from the case:

1.Know what laws apply to sales compensation agreements in your state. For example, in this case Michigan's Sales Representative Commission Act was at issue. Your BNA state law summary can help.

2.There is a difference between lead generation, customer procurement and a sale. If the salesperson generates a lead are they entitled to all the sales anyone makes from them? Or are they only entitled to a commission on direct sales they have made?

3. What does it mean to make a sale? Did they do all they needed to do on their part? Is the commission conditioned on actual payment? What about returns or other offsets?

4. How long are they entitled to commissions? For all subsequent sales or renewals?

5. How involved are they after the sale? If there is an ongoing service obligation that matters in terms of post-termination compensation.

6. Make sure you have all the above in a signed agreement. As mentioned by the court "the contract says nothing regarding termination; it provides no express answer to how the parties intended to terminate their relationship."

Note this was a difficult decision for the court as one of them dissented, agreeing with the underlying decision of the District Court that no wages were due.

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