Pennsylvania Wage Payment & Collection Law: Terminated Employee May Have Claim for Unpaid Commissions

We are frequently consulted by terminated sales representatives who have not been paid commissions for sales consummated during their employment. While payment for commissions to a terminated employee is generally a question of the employer’s policy, in O’Donnell v. Passport Health Com., 2013 U.S. Dist. LEXIS 51432 (E. D. Pa. April 10, 2013)(Tucker, J.), the Court found that when an employer’s sales plan language is not clear, there may be an opening for employees to recover unpaid commissions after their employment is terminated.

In O’Donnell, the plaintiff was a sales executive whose compensation consisted of a salary and commissions. Eligibility for commissions was governed by the employer’s Sales Compensation Plan document, which provides that an employee “must be employed at the time of payment to receive commissions.” After a reorganization there was negotiation over a new position but ultimately the employer notified the employee that her failure to execute necessary documents resulted in the termination of her employment. While the court granted summary judgment on several of the employee’s claims, the court denied summary judgment on the Pennsylvania’s Wage Payment and Collection Law (“WPCL”) for unpaid commissions.

In O’Donnell, the court noted that the WPCL applies to back wages already earned and while the employer’s Plan provides “[e]mployees must be employed at the time of payment to receive commissions”, the employee argued that this aspect of the employer’s Plan is a “forfeiture clause” that is invalid under 43 Pa. Stat. § 260.7 of the WPCL which provides: “No provision of this act shall in any way be contravened or set aside by a private agreement.” The Court noted that “(e)ven more problematic is the fact that, in the Court’s view, the Plan is silent as to precisely when commissions are considered “earned” and nowhere in the Plan is it stated that commissions are not earned until paid. Since the definition of wages and commissions under the WPCL is focused on the term “earned,” the Court held that there is genuine issue of material fact as to this question and denied summary judgment.

The O’Donnell decision outlines two key points under Pennsylvania’s Wage Payment and Collection Law. First, in assessing entitlement to commissions, the precise terms of the employer’s commission plan must be analyzed, and in particular, whether there is clear language as to when commissions are deemed, “earned.” Second, even when an employer has an employee who works in Pennsylvania sign an employment contract which requires the application of the laws of a state other than Pennsylvania, the WPCL’s “forfeiture clause” has been construed to mean that a contract requiring application of another state’s law is a ” private agreement” which cannot circumvent the application of the WPCL to an employee who is employed in Pennsylvania.

For more information on the Pennsylvania Wage Payment and Collection Law and Abramson Employment Law see http://www.job-discrimination.com/lawyer-attorney-2122061.html

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Filed under Pennsylvania Wage Payment and Collection Law, Sales Commissions

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