Friday, July 20, 2007

You May Be Entitled to Commissions in Your Pipeline when Your Employment Terminates

The Maryland law on commissions is favorable to employees. The Law that applies to commissions in Maryland is the Maryland Wage Payment and Collection Law.

A key provision of the Law states:

“Each employer shall pay an employee or the authorized representative of an employee all wages due for work that the employee performed before the termination of employment, on or before the day on which the employee would have been paid the wages if the employment had not been terminated.” Md. Code Ann. Lab. & Empl. §3-505.

“Wages” are defined as “all compensation that it is due to an employee for employment,” including commissions. Md. Code Ann. Lab. Empl. §3-501(c)(1) &(2). Md. Code Ann. Lab. Empl. §3-501(c)(1)

Section 3-501.1 provides the employee a civil cause of action to recover wages withheld in violation of Section 3-505. In addition, the Court can award the plaintiff treble damages and reasonable attorney’s fees. Section 3-501.1

The Maryland Court have issued a series of opinions on the rights salespeople have to collect their earned commissioned under the Maryland Wage Payment and Collection Law.

Admiral Mortgage, Inc. v. Cooper, 357 Md. 533, 745 A.2d 1026 (2000).

In Admiral Mortgage, Inc. v. Cooper, 357 Md. 533, 745 A.2d 1026 (2000), an employee, whose main job was to generate and develop loans, sued for commissions that closed after his termination. For the loans in question, Mr. Cooper had obtained a completed application and other necessary documents and turned the files over to another employee for processing and closing. 357 Md. at 537, 745 A.2d 1026. Admiral Mortgage claimed that, "when a loan officer left, any of his or her pending applications would be worked on by someone else, and that person would be paid the commission when the loan closed." Id. at 544, 745 A.2d 1026. Rejecting the employer’s assertion that no commission was due on any loan that had not closed by the time the plaintiff left his employment, the jury awarded the plaintiff the unpaid commissions. The Maryland Court of Special Appeals affirmed the judgment based upon the jury award.

● Medex v. McCabe, 372 Md. 28, 811 A.2d 297 (2002)

In Medex, the plaintiff was a sales representative for a medical supply manufacturer. Part of his compensation package was incentive fees based on sales made during fiscal years. His employment agreement, however, provided that “[p]ayment from all Company incentive compensation plans is conditional upon meeting targets and the participant. . . [being] employed at the time of actual payment.” 372 Md. at 33, 811 A.2d 297.

The plaintiff resigned on February 3, 2000, four days after the fiscal year ended. The employer paid the inventive fees on March 31, 2000. Because the plaintiff was not employed on that date, his employer refused to pay plaintiff’s fees.

Reversing the decision of the trial court, the Court of Appeals held that the plaintiff was entitled to the incentive fees. While acknowledging that under common law contract principles, the contract provision would have provided sufficient basis to deny payment, the Court of Appeals noted that “[c]ontractual language between the parties cannot be used to eliminate the requirement and public policy [of §3-505] that employees have a right to compensated for their efforts. Id. at 39, 881 A.2d 297. The court found the contract language in question invalid and unenforceable. Id.

The Medex Court further explained that employers in this State cannot hold their employees hostage by imposing arbitrary barriers to their compensation. The Court of Appeals held that “the employee’s right to the payment of wages vests without satisfaction of the provision of continued employment. To hold otherwise would place the rights of employees to these wages at the whim of their employer, who could simply terminate any at-will employee whose incentive fees if didn’t wish to pay.” Id. at 42, 811 A.2d 297.

McLaughlin v. Murphy, Civ. No. CCB-04-767, 2004 WL 1634980 (D.Md. July 20, 2004) (Blake J.)

In Murphy, the plaintiff was a loan officer paid by commission. His employment agreement provided that, should his employment be terminated, he would not receive a commission on loans that had not settled before termination. After he was terminated for lying about his dealings with a client, Mr. McLaughlin brought claims against his former employer under the Wage Payment Act for commissions on three loans that he had originated but had yet to close at the time of his

In denying the plaintiff’s claim, Judge Blake noted that, for two of the pending loans, Mr. McLaughlin had signed up the customers for loan programs for which they did not qualify. As a result, these loans had to be completely redone by another loan officer. Significantly, the replacement loan officer was paid the commission once the loans closed. The third loan had yet to close when Judge Blake issued her decision. 2004 WL 1634980 at *5.2

Rogers v. Savings First Mortgage, LLC, 362 F. Supp. 2d 624, 643-646 (D.Md. 2005)

The plaintiffs in Saving’s First were loan officers who sued their employer for unpaid commissions on loans that went to closing after a “voluntary or involuntary” termination. 362 F. Supp 2d at pp. 624, 627. The employer’s policy was not to pay commission to a loan officer on any deal that went to closing after a loan officer’s employment terminated.

After reviewing Murphy and Admiral Mortgage, Judge Nickerson denied the employer’s
motion for summary judgment in Savings First. He found the facts there were more similar to Admiral Mortgage than Murphy. The loan officers at Savings First developed leads then assigned most of the administrative work to other employees. Significantly, after the plaintiffs terminated their employment, Savings First did not hire new loan officers to complete the work. Nor did it pay commissions to any other loan officer. It just kept the money. In such circumstance, the Court could “[]not conclude that Defendants' bright line rule denying all Plaintiffs their terminal commissions is reasonable.”

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