Summary: This article gives an overview of the May 2022 Texas Supreme Court decision Perthuis v. Baylor Miraca Genetics Laboratories, LLC, and its implications for employees’ rights to their commissions in Texas.
Under Texas law, if you are an employee who is paid via commission, as long as you fully performed what you were required to do under your commission plan at the time, you are owed the commissions for your work. Furthermore, written commission plans can only be modified in writing. Employers can modify their commission plans prospectively, i.e., going forward. But employers cannot escape their obligation to pay commissions already earned by changing the plan.
Unfortunately, knowing this, some employers may try to “creatively re-interpret” or add to your commission plan after the fact to claim that actually, no, you did not meet the requirements. Some employers may even go so far as firing employees in an attempt to avoid paying commissions owed.
Fortunately, a recent Texas Supreme Court decision, Perthuis v. Baylor Miraca Genetics Laboratories, LLC, 645 S.W.3d 228 (Tex. 2022), has clarified the limits on companies’ abilities to employ these sorts of dirty tricks. This article gives a brief overview of that decision and its implications. In sum, if you are paid via commission and your work made a sale possible, by default you are owed commission for that sale whenever finalized, regardless of your involvement beyond that.
In that case, Brandon Perthuis was the Vice President of Sales and Marketing for a company that sold genetics tests. His commission plan simply said he would receive commissions of “3.5 percent of [his] net sales.” In January 2017, the company fired Mr. Perthuis days after he negotiated a major sale, but before the contract was signed. The company refused to pay Mr. Perthuis any further commissions for that deal or any others that were not “finalized” before it fired him, so he sued for breach of contract. Mr. Perthuis won at trial, but the company appealed.
In a May 2022 decision, the Texas Supreme Court ruled that because Mr. Perthuis’s commission plan did not state otherwise, he was owed commissions on any sales for which he was the “procuring cause.” The company could not just fire him to avoid paying him for his work.
A “procuring cause,” the Court held, can mean different things in different situations, but generally is met where the employee can show “a chain of events . . . which, without a break in their continuity, cause the buyer and seller to reach agreement on the sale as a primary and direct result of the plaintiff’s efforts.” Id. at 242 (internal quotations omitted). In other words, Mr. Perthuis was owed commissions on any sales that were primarily and directly caused by his work.
The big question is, did you make the sale possible? Id. at 235. The Court noted this standard can be met if the employee “produced” a “ready, able, and willing” buyer. Id. at 234. Importantly, an employee can be a procuring cause of a sale regardless of any “actual involvement in a sale’s execution or continued employment through the final consummation of the sale.” Id. Indeed, the Court specifically noted that if an employee brokered a deal that would generate repeated sales for years “with no material adjustments,” the employee would be owed commissions on all those sales, even if no longer an employee. Id. at 243.
The Texas Supreme Court noted that the question of whether an employee “procured” a sale is usually going to be a complicated question of fact that a jury will have to decide. Id.
The main upshot of this case is that it may be harder for employers to hide the ball when paying out commissions. The “procuring cause” rule is meant as a “default” rule, meaning that courts should apply it unless the text of the parties’ agreement conflicts with it. For example, a plan might (and some agreements do) explicitly state that you are only owed commissions for sales that close during your employment, or put a time limit on how long procured sales will be paid out.
However, employers cannot just “rewrite contracts by adding exceptions under the guise of ambiguity.” Id. at 235. An employer cannot just claim an existing contract had other terms that aren’t actually in the plan to escape from this default rule. So, if an employer wants to take your commission plan outside of this default procuring cause rule, the plan must state as much. Of course, employers are likely going to become aware of this rule and may re-write their commission plans accordingly. So, as an employee, it is important to keep careful track of changes or additions to your commission plan.
If you believe you are being denied commissions you are owed, you should consult an employment attorney such as those at Rob Wiley, P.C.