Insurance entities, including brokerages, agencies, and insurers that pay employees commissions and employees who earn commissions from them may wish to closely examine their commission agreements based on a recent Supreme Judicial Court (SJC) decision, Parker v. EnerNOC, 484 Mass. 128 (2020).
In the Parker case, the SJC found that unpaid future commissions, that were not due and payable when the employer terminated an employee, were subject to trebling under the Massachusetts Wage Act.
Jury verdict awards payment for post-termination future commissions
After an eight-day trial, a jury found that EnerNOC and its vice president of sales had violated M. G. L. c. 149, §§ 148, 148A & 150 (the Wage Act or Act).
The violations involved the termination of Francoise Parker (Ms. Parker) after she complained about her commission payment and subsequently was not paid the full amount of a contingent commission she had earned. Ms. Parker claimed EnerNOC had terminated her in retaliation for her complaint causing her to lose a future contingent commission that was not payable if she was not employed when the commission became payable.
The jury’s damages against EnerNOC and its vice president included $25,063.34 in past unpaid commissions to which the Superior Court added $50,126.68 in liquidated damages under the Wage Act (trebling the unpaid commissions) and $240,000 in punitive damages. The jury also awarded $349,098.48 plus interest for Ms. Parker’s future commission payments lost because of the retaliatory termination by EnerNOC. Finally, the Superior Court also awarded Ms. Parker attorney fees of $390,750 and costs of $5,844.63.
The Superior Court, however, denied Ms. Parker’s claim to treble the $390,750 award under the terms of the Wage Act. The judge’s reasoning was that since the unpaid contingent commission amount was not due and payable at the time of Ms. Parker’s termination, it could not be considered a lost wage.
Both EnerNOC and Ms. Parker appealed, and the SJC granted an application for Direct Appellate Review bypassing any review by the Appeals Court.
Why is this decision important to commission payers and commission receivers in the insurance industry?
Many employment agreements with commission-based compensation in the insurance industry have provisions similar to the one in this case that has the payment of commissions dependent on continued employment. In certain situations, these common clauses may run afoul of the Wage Act.
Ms. Parker’s commission arrangements and her big sale
In March 2014, Ms. Parker joined EnerNOC as a senior sales manager. Her annual starting salary was $120,000.00, plus commissions.
As a senior sales manager, her responsibilities involved selling EnerNOC’s energy-related service contracts that allowed EnerNOC’s customers to save costs on their energy usage.
In some cases, EnerNOC’s long-term contracts offered as an inducement, a termination for convenience clause. This clause allowed the customer the option to terminate their long-term, multi-year contract without penalty if done within a year or more. If the client decided to exercise its termination option, it owed EnerNOC no further money beyond what it had already paid.
On contracts with this termination option, EnerNOC only paid sales commissions on the shorter guaranteed period of the contract initially. However, it would then pay the full contract commission if the customer did not exercise its cancellation option.
In 2015, EnerNOC modified this commission arrangement with a change to its compensation agreements providing:
Contracts, …which allow for a termination of the contract prior to its expiration, will only be eligible for a Qualified Booking Commission for the term length guaranteed by the contract.
However, the evidence before the jury showed that EnerNOC always expressed the intention to pay commissions on the full term of contracts with an option to terminate if the client did not terminate early by exercising their option. This commitment to paying commissions beyond the guaranteed term once a customer did not exercise its option to terminate became known at EnerNOC as the commission “true-up policy.”
Under the “true-up policy”, EnerNOC would pay commissions on the initial guaranteed term of the contract in the quarter in which a deal was booked. After the customer’s termination option period expired, it would conduct a “year-in-arrears” review. If the contract extended beyond the option exercise date, EnerNOC would pay the salesperson additional commissions based upon the full contract term with the sole contingency of the salesperson being an active employee at the time the trued-up commission became payable.
Ms. Parker worked diligently to earn her commissions. Within two years of her hire, on March 4, 2016, she closed a $20 million contract, the largest software contract in EnerNOC’s history. The five-year contract had a provision that allowed the customer, Eaton Corporation, to cancel the contract within thirteen months, with or without cause, and without any further obligations beyond payments for the first thirteen months of EnerNOC’s services.
On or about the same time as the Eaton contract closing, Ms. Parker complained that EnerNOC was not paying her full commissions.
On April 1, 2016, less than one month after closing the Eaton contract, EnerNOC terminated Ms. Parker’s employment. EnerNOC claimed that Ms. Parker had made “a number of unprofessional communications with her direct supervisor, unrelated to her compensation.”
EnerNOC subsequently paid, the newly terminated Ms. Parker $100,222.21, on April 22, 2016, claiming that this was the guaranteed commission on the Eaton contract.
Approximately four months later on August 19, 2016, Ms. Parker filed her Wage Act suit claiming unpaid past and future commissions that resulted in her favorable jury verdict and awards. When the Superior Court judge refused to treble her $349,098.48 in “true-up” commissions based on Eaton ultimately not exercising its thirteen-month option to terminate, however, she appealed the decision.
Likewise, EnerNOC appealed arguing the jury verdict was incorrect, and the judge’s failure to enter judgment notwithstanding the verdict in favor of EnerNOC was also in error.
The SJC rules on EnerNOC’s appeal before addressing future commissions
On the appeals, the SJC first dealt with EnerNOC’s appellate claim that “there was insufficient evidence that EnerNOC had an actual “true-up” policy, but even if it did, it had no obligation to make an additional commission payment of $349,098.48 to the plaintiff.”
EnerNOC argued that the written sales commission policy that Ms. Parker had signed explicitly stated that a contract, like the Eaton contract, contained an option to terminate would “only be eligible for a…commission for the term length guaranteed by the contract.” This written sales commission policy stated explicitly that it “supersedes all prior plans and policies.”
Upon review of the documents, the SJC determined that the emails sent and communications occurring after the 2015 sales commission policy document, provided evidence of the continued existence of a “true-up” commission policy. In addition, Ms. Parker’s own testimony as well as the testimony of one of the defendants, EnerNOC’s then vice president of sales, that there was such a true-up policy in effect allowed the jury’s verdict to stand.
Commissions that are “determined” and “due and payable” are under the Wage Act’s treble damage provisions
By statute, employees who are not paid their wages have a private right of action against the nonpaying employer and certain officers of a corporate employer for injunctive relief and civil damages, including mandatory treble damages, attorney fees, and costs. The act has a broad reach and classifying a commissioned salesperson as an independent contractor may still subject a company to liability. For further discussion on this topic, please refer to Agency Checklists’ article: “Looking at the Massachusetts Independent Contractor Law.”
This Wage Act provision also applies to the payment of commissions “when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due and payable to such employee.”
Thus, the Act requires that commissions must be paid when two conditions are met:
(1) the amount of the commission “has been definitely determined;” and
(2) the commission “has become due and payable.”
The terms of the act concerning the payment of wages or commissions to employees cannot be varied by contract as the act forbids “special contracts” between an employer and employee that purport to exempt the employer from the requirements of the act.
Finally, the Wage Act prohibits employers from retaliating against employees who assert their rights stating: “No employee shall be penalized by an employer in any way as a result of any action on the part of an employee to seek his or her rights under the wages and hours provisions of this chapter.” The violations of the retaliation provisions of the act are punishable by fines and imprisonment.
The SJC rules Ms. Parker’s future commissions are protected by the Wage Act
The only question before the SJC on Ms. Parker’s appeal was whether the award of $349,098.48, the amount that would have been due and payable to Ms. Parker one year later if she had not been fired, constituted wages subject to the Wage Act’s mandatory treble damages.
The Superior Court judge had ruled that the $349,098 awarded to Ms. Parker as damages for retaliation was not “due and payable” and thus not subject to the Wage Act’s mandatory trebling provision.
The SJC did not disagree with the Superior Court, but still found the contingent commission was a “wage” under the act stating “although the plaintiff’s commission never became due and payable under the “true-up” policy during her employment, it is, nevertheless, a “lost wage” under the Act subject to trebling.”
The judges based their reasoning on the retaliation provision of the Wage Act, holding that “Commissions that are not yet due to be paid may nonetheless constitute lost wages if the employer’s violations of the act prevent payment of those commissions.”
The Court found that the “true-up” policy, in conjunction with EnerNOC’s retaliatory termination of Ms. Parker, made it impossible for her to fulfill the only unmet contingency required to collect the “true-up” commission. “A policy that conditions payment on continued employment cannot relieve an employer from the obligation of paying a commission where the employer terminates its employee in retaliation for complaining about wage violations in the first place.”
The Parker decision and continuing employment commission contracts
Based upon the SJC decision, one of the salient questions remaining is this “How far a condition of continuous employment can be pushed in refusing to pay contingent commissions?”
This decision turned on a retaliatory termination that made it impossible for the employee to satisfy the continuous employment condition necessary for her to collect her commission. However, the Attorney General, who enforces the Wage Act, argued in an amicus brief submitted in support of Ms. Parker’s position that “when an employer terminates an employee to avoid paying commissions that would otherwise have become due, but for that termination, the employer cannot escape liability under the Wage Act by relying on a contract provision that imposes a condition of active employment.”
Such a broad interpretation of the prohibition of “special contracts” in the Wage Act would make many commission-based contracts potentially problematic when terminating an employee entitled to contingent commissions had their employment continued.
Further decisions may clarify this question. However, anyone with a contingent commission contract would be wise to read its terms considering the rulings in the Parker decision.