Almost all employers who use commissioned salespeople have an understanding with them regarding how commissions are earned; some even put this agreement into writing. Unfortunately, many do not state specifically when employees stop earning commissions. This can lead to expensive, unintended consequences in Texas.
Last month, the Texas Supreme Court in Perthuis v. Baylor Miraca Genetics Lab’ys, LLC, breathed new life into an old doctrine (the “procuring-cause” doctrine) that originally dealt with real estate broker commission agreements. In Perthuis, the court held that an at-will employee who receives a commission as part of his compensation continues to earn commissions on sales consummated after the employee’s termination if:
- The employee was the “procuring cause” of the sales, and
- The commission agreement between the employer and employee “is silent about any exceptions.”
The commission agreement that was being litigated in Perthuis was very simple: “Your commission will be 3.5% of your net sales.” The agreement did not define “net sales” or put any other limitations on the commissions.
Perthuis negotiated a contract with his employer’s largest customer to increase its minimum purchase obligations. The employer subsequently fired Perthuis and refused to pay him any further commissions. Perthuis sued, arguing that he was the procuring cause of the sales and that in the absence of language to the contrary in his commission agreement, under the procuring-cause doctrine he was entitled to commissions on sales made long after his employment with his employer ceased.
The Trial court and jury agreed and awarded Perthuis over $1 million in damages and interest. The Texas Supreme Court agreed with the trial court – 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.”
Unless employers include sufficient language in their commission agreements, the procuring-cause doctrine will apply by default, and they may owe Texas employees commissions on sales consummated years after the employees’ employment ceases. To avoid this, employers should closely review their commission agreements and revise them as soon as possible. As always, I will be happy to assist you in any way possible.