“Can an employer change a compensation plan retroactively?”

Question: I work as an outside sales representative for a small consulting company. My compensation plan includes a base salary plus commissions in multiple “tiers” of commission rate. Whether or not you reach a higher “tier” depends on when a contract is signed.

Last year I brought in a large deal that entitled me to a higher “tier” for the life of that contract, and the contract was signed last year. The company has decided to adjust the details of the “tiers” and base payment on “collections” not “contracts signed.” This has made my income from that deal I brought in last year much lower.

My offer letter states that my employment is “at will” and that the company can change the compensation at any time, but can the company go back and rewrite the plan in this way?

Thank you for your help.

Los Angeles, California

Answer: Dear Barry:    

Just a great question, as it raises an issue that more and more of our blog visitors seem to face.

1. A compensation or commission “plan” is a kind of contract, and must be carefully reviewed. As with any contract, in order to know your rights, you need to carefully review each of the words – and even the punctuation – of a compensation or commission plan. Sometimes that is not easy to do. But that is where you need to start. If it is simple, clear and direct – as I hope it is –  you should not need to have an attorney review it for you. But if it contains confusing language, words whose meanings you’re not sure you understand, or convoluted sentences and paragraphs, it may be wise to have an experienced employment attorney give it a read-over for you.

2. In general, compensation plans, commission plans, and all other contracts cannot be “retroactively” changed – unless the contract, in its own words, says it can.  I don’t mean to confuse you. In general whatever version of your commission plan was in effect last year determines what your rights are to money earned last year. So, your employer cannot say, “Well, you earned commissions last year according to the contract in effect last year, but we are changing the contract now.” That simply will not stand up to any legal challenge.

However, be careful: your commission plan as it was written and in effect last year may have permitted later, “retroactive” changes in certain circumstances. So, it is possible that what your employer is trying to do now is, in fact, permitted by the commission plan in effect last year. I say this because of my experience with compensation and commission plans. Many provide for later “modifications” or “interpretations” by the employer to accommodate new circumstances. Again, the words make all the difference. What seems like a “re-writing” of the commission plan may not be one – or it may.

3. Your commission plan may specify how you can file an objection or complaint; if it does, it may be wise to follow it promptly, in a respectful way, and see what response you receive.  Many plans do specify a certain way to challenge the treatment you receive. You may be wise to first follow that route regarding your concern. First, the company might just decide you are correct. Second, if the company says you are incorrect, it would be helpful to know why they say that. Third, there may be deadlines for filing an inquiry or complaint, and you surely don’t want to miss any deadline.

4. If your employer’s commission plan does not specify how to file an objection or complaint, it may be wise to send a written, respectful request for (a) the monies you believe you are owed, and (b) if not, an explanation for why you are not going to receive them. Without being adversarial, threatening or demanding, your next step may be to simply and respectfully ask for what you believe is due you, or a clear explanation for its being denied. You should not hesitate to make such a request, so long as it is written in a respectful, non-accusatory tone.

If you would like to obtain a Model Letter to respectfully request commissions you believe are rightfully due you, [click here].

5. Always keep in mind, though, that your employment is “at will.” While I do not like employees being afraid to ask to be treated fairly or legally, it is always possible that, if you make a respectful request or file a complaint, you may be considered something of a “trouble- maker.” While such retaliation is always possible, in my opinion on such matters it is not all that common. Then again, if you do think that a retaliatory response is likely to occur, it may just be wise to hold off for now. In most states, the law provides you six years to file a lawsuit for such monies, although I am not certain of the law in California, as I am not licensed to practice law there. The law in California is usually quite “employee-friendly.”  

Overall, Barry, “A deal is a deal is a deal.” If your “deal” was “the deal,” well, it still is “the deal.” Unless it has the right in its commission plan, an employer can’t now have what, as kids, we used to call a “do – over.”

Hope that is helpful. If so, kindly forward this to others you feel may be in the “same boat” as you are by Twitter, Facebook or other social media. Thanks for writing in. Welcome to the “Family.”

Al Sklover

© 2011 Alan L. Sklover, All Rights Reserved.

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