“Can an employer change the time commissions are earned and paid?”

Question: My wife was called into her boss’s office yesterday (he is the company’s owner) and asked to change her compensation starting January 1st from (1) salary plus 7% commission to (2) straight 30% commission. This new compensation plan would have given her an extra $10,000 compensation this past year, so it seems like a good deal.

The question is how to handle “carry over sales,” that is, the sales that were booked (i) while the old commission plan was in place, but (ii) have not yet been paid for by the customer.

Before last spring, commissions were earned and paid when a sale was booked. After last spring, the company changed policies so that commissions were considered earned and were paid when the customer made its payment. Right now, there are $86,000 of sales that have been (i) booked, but (ii) not paid for by customers. 

The owner wants to pay my wife 7% of these $86,000 “carry over” sales, while my wife thinks she should get 30% on them. When she voiced her opinion, her boss stated that either she takes the 7%, or she will be fired.

Is this wage theft? Extortion? Does she have any recourse if she is fired? 

         Cedar Rapids, Iowa

Answer: Dear Derek, Your questions are especially helpful, as they are quite common among commission-based salespersons.

First, rights to commissions are determined by what the employer and employee agree to. Whenever people are paid for their services on a commissions basis, decisions regarding (i) when they have earned those commissions, (ii) the amount they are due, (iii) the timing of when they are to be paid, (iv) what conditions (if any) apply, and (v) all other terms and conditions of payment, are generally determined by the agreement reached between employee and employer.

From what you have written, as of last spring, the company changed its commission policy, and your wife indicated her agreement with that change by staying with her employer. Thus, as of last spring, she became due (a) 7% (b) of client monies (c) when paid by the customer (in addition to her salary.) If your wife did not agree to this change, then she could have left the company and sought employment elsewhere.    

Second, the employee and employer can change their agreements whenever they want to. That seems to be exactly what happened here: during the spring, the employer changed its policies and, in effect, said to your wife, “If you would like to remain with us, you will need to agree with this change in when you have earned, and get paid, commissions.” Your wife could have left, but decided to stay. In that way, she would be viewed to have consented to the change.

Third, changes in agreements are presumably “prospective,” not “retroactive.” Employers are free to change their compensation policies, and employees are free to accept or reject those changes. But unless the parties agree otherwise, changes take place only after they are agreed upon, not retroactively.

From what you have written, the new change to (i) commissions-only compensation and (ii) to commissions of 30% of collections takes place January 1st. Taking into account the agreement between your wife and her employer – effective last spring – that commissions are earned and paid only when a customer has paid, it would seem to me that the commissions on the $86,000 “carried over” sales would be earned and paid in the future – after January 1st – and would be paid at the commission rate then in effect: 30%. So, if it is logic that you seek, “Judge Sklover” (ha ha ha) would find in your wife’s favor, and against her employer’s position.

But Wait: Logic doesn t make the biggest difference, agreement does. It seems to me that your wife and her boss apparently have not yet really agreed on all of the terms of their new employment relation. While your wife has logic on her side, logic is not what counts, agreements count. Your wife’s boss is saying, in effect, “If you want to stay working here, this is my decision on the $86,000 in carry over sales. Take it or leave.” Your wife is free to do either, and to remain or leave (assuming, of course, that she does not have a contract for a definite period of time.)

Finally, while “take it or leave” sounds extortionate, it is not extortion. Nor is it “wage theft.” As I noted above, your wife agreed last spring that, if customers did not pay their bills by December 31st, then she was not due commissions on those sales on December 31st. In relations, including employment relations, “Take it or leave” is not extortion. Extortion is a threat to do something or reveal something about someone unless they pay you a lot of money. To end a relation is not such a threat. 

It’s important to bear in mind that employees and employers can both make a “threat” to end their working relation if they don’t get something they want. It’s sort of “equal” in that regard. Sure, there seem to be more employees seeking jobs than there are employers seeking employees. But that is not always the case. And, too, great employees are always in great demand.

Sorry if this is not exactly the answer you had hoped for, but it is the truth, and I’m certain you were most interested in that.

Thanks for writing in. If this has been helpful, please tell two or three friends about our blogsite, so that they too can learn how to navigate and negotiate for themselves at work.

          Best, Al Sklover   

© 2011 Alan L. Sklover, All Rights Reserved.