Background and All Too Common Scenario
In 2022, the Texas Supreme Court heard the case of Perthuis v BMGL. BMGL had a commission agreement that was two pages and stipulated that if Perthuis sold things, he got a commission. Perthius sold things and, in one instance, reworked an agreement he had sold years earlier. Then he was terminated. Perthuis thought he should be paid, and BMGL said, ‘you don’t even work here anymore – no money for you!’ Sound familiar?
Unless otherwise noted, all quotes in this paper cite Perthuis v. Baylor Miraca Genetics Laboratories, LLC, -S.W.3d-, (Tex. May 20, 2022) [21-0036].
Rules on Unwritten Commissions
Wages are VERY regulated in most states. Even federally, the way we are permitted to pay folks is very technical. In Texas, we defer to the federal scheme of wage issues, which, again, is rather technical. States like Colorado add a good bit of regulation by statute and case law. California, of course, takes the cake and practically has a different set of rules for each municipality. Rules for commissions are rules for wages but are generally regulated by wage laws AND contract laws. As with any contract, if it isn’t written, commission agreements default to the rules of contract construction. Sometimes, past practice[1] can enlighten how a commission should be interpreted. Believe me, when I say your former employee will sue you over a novel issue with no past practice. In that case, your commission agreement will revert to 1) what is written and 2) the rules governing how a contract is interpreted by courts (not by you, not by your industry, and not by common sense).
In Texas, we clearly follow the procuring-cause doctrine as of 2022. The procuring-cause doctrine is undeniably now the rule of unwritten agreements for Texas commissions. The court, citing prior jury instructions, says:
A “procuring cause” of a sale is the principal and immediate cause of the sale. It need not be the sole cause, and an agent is said to be the procuring cause of a sale when his acts have so contributed to bringing about the sale that but for his acts, the sale would not have been accomplished.
Rules on Written Commissions
The court is ridiculously repetitive regarding the number of ways it says ‘DON’T BE SUCH A SIMPLETON’ and ‘WRITE WHAT YOU MEAN’ except that it uses more courtly words, such as mentioning its frustration with employers’ “refusal to countenance any effort.” This does not mean that you must write a complicated document. It only means you must say what you mean and that honoring brevity over transparency in commission agreements likely means you will pay all undescribed commissions. The court refers to the procuring-cause doctrine as the “default rule,” meaning that it is the rule the court will apply if you do not provide it an alternative, contractually promogulated rule to apply. Stated differently, your silence or brevity means the procuring-cause doctrine applies.
Generally speaking, so long as the wage standards are met, commission agreements can be as simple or as complicated as you like. If you want a commission to be due on the third full moon after the customer has paid in full if the agent brings you flowers, your commission can be due on the third full moon after the customer has paid in full if the agent brings you flowers. It is notable, however, that the court makes a point of indicating the brevity of the contract in Perthius (two pages) as a gigantic signal that the agreement is not likely sufficiently nuanced. In another example, the court indicates that if you don’t want to pay a commission after the termination of employment, that is totally permissible so long as you write that into your commission agreements.
Test for unwritten Texas Commissions:
Pre-Conflict Test: Does your written commission agreement state enough that the court’s default rules will not change your intended meaning?
Post-Conflict Test: Would the sale have occurred without the Agent or the Agent’s actions? If yes, no further action is required for the payment of the commissions.
The court makes it clear that this is now the rule in Texas, and it will not draft for those who will not draft for themselves. Nothing about the at-will doctrine has any consequence for employees earning commissions, and you may still freely terminate employees for any non-discriminatory reason, but their earned commission payments remain unaffected by the termination of their employment and salary. This is because “just as salary may be owed for days of work completed before termination, so too may commission fees be owed for [commission earnings] from work completed before termination” unless you otherwise contract for it in writing.
Irrelevant factors for Unwritten Texas Commissions:
o Timing
o Complications
o Other actors
o Other situations
o Prior agreements
o Employment status
o Bad acts by the agent
o Death of the agent
o Contract execution
o Investment in the transaction
o Payment
o Modifications
o World events
o Interest rates
o Contingencies
o The obvious
o The unspoken
Factors Permissible in Written Texas Commissions:
See the list immediately above.
Treaty Oak ELG helps employers in Texas and Colorado draft agreements that accomplish their intended purpose without overly complicated terms. Contact us to initiate the process of balancing transparency, straightforwardness, and comprehensiveness so that your organization’s commission agreements have the intended effect of incentivizing without the devastation of wage conflicts.
[1] The phrase ‘past practice’ simply means how things were consistently done in the past
