Compensation disputes can become complicated when a salesperson leaves a company and later claims additional money based on work performed during employment. The terms “commission” and “deferred compensation” are sometimes used interchangeably, but they can describe different legal rights.
For Michigan employees and sales representatives, the distinction can affect whether compensation is owed, when it becomes payable, and which statute or contract governs the dispute. At August Law, our commercial litigation attorneys can help you understand what you may be entitled to and how to pursue it.
What Is a Commission Under Michigan Law?
Michigan law treats certain sales commissions differently. Under the Michigan Sales Representatives’ Commission Act (MCL 600.2961), a “commission” is compensation paid to a sales representative based on a percentage of orders, sales, or profits. The statute defines a sales representative as someone who contracts with or is employed by a principal to solicit orders or sell tangible goods and who is paid, at least in part, by commission.
That definition is important because the statute is not simply a general rule governing every compensation arrangement that happens to include a commission. Whether this law applies requires examination of the parties’ relationship, the nature of the business, the goods involved, and the compensation arrangement.
When the statute applies, the contract generally determines when a commission becomes due. If the contract does not establish when payment is due, Michigan law looks to the parties’ past practices or, if none, to the applicable custom and usage in Michigan.
What Is Deferred Compensation?
Deferred compensation generally refers to compensation associated with work performed at one time but paid at a later date. Depending on the agreement, it can include bonuses, renewal compensation, incentive payments, or other benefits payable upon satisfying certain conditions.
The legal question is often not simply whether the payment occurs later. Instead, the issue is whether the employee or sales representative has already earned a contractual right to the future payment.
Why Does the Difference Matter After Termination?
A salesperson may believe that a sale completed before termination automatically creates a right to every later payment associated with that customer. That is not necessarily the case.
The relevant agreement may provide that a commission is earned when an order is accepted, the customer pays, the company delivers the product, or another specified event occurs. Similarly, a renewal payment may depend on additional service or continued employment.
Michigan’s Sales Representatives’ Commission Act provides specific rules governing its application. Commissions due when the relationship ends generally must be paid within 45 days after termination. Commissions that become due later must be paid within 45 days of their due date. A principal that intentionally fails to pay qualifying commissions can face additional statutory damages, and the statute permits an award of reasonable attorney’s fees and costs to the prevailing party.
What Evidence Helps Establish the Right to Payment?
A commission or deferred-compensation dispute may depend on several documents and business records, including:
- The employment agreement or sales representative agreement
- Commission plans and compensation schedules
- Written amendments to the compensation arrangement
- Emails discussing how compensation would be calculated
- Sales records and customer orders
- Payment histories
- Records showing when customers paid
- Evidence concerning the parties’ past practices
The Agreement Often Determines the Outcome
The agreement’s precise language, the parties’ conduct, and applicable Michigan law can all affect the analysis. If you have a dispute concerning commissions or deferred compensation, contact us online for a consultation.