Whether a salesperson is classified as an employee or an independent contractor can affect more than payroll and tax treatment. In a commission dispute, classification may also affect which legal protections apply, what agreement governs the relationship, and whether Michigan’s Sales Representatives’ Commission Act provides a potential remedy.
Our sales commission attorneys at August Law represent clients throughout Michigan in commercial and business disputes involving sales commissions, contracts, and compensation arrangements.
Does Calling Someone an Independent Contractor Settle the Issue?
Not necessarily.
A written agreement may describe someone as an independent contractor, but the legal analysis can depend on the relationship’s substance and the statute at issue. Courts and government agencies may consider factors involving control, independence, payment, the nature of the work, and the overall relationship.
The classification question can become especially important when a company argues that a salesperson is not entitled to a particular statutory protection because the salesperson is an independent contractor.
How Does Michigan’s Sales Representatives’ Commission Act Define a Sales Representative?
The Michigan Sales Representatives’ Commission Act (MCL 600.2961) is unusually important in Michigan commission disputes because its definition of “sales representative” expressly includes a person who is employed by or contracts with a principal to solicit orders or sell tangible goods and who is compensated at least partly by commission.
That means the statute’s definition does not simply say “employee.” An individual can potentially fall within the statute even when the relationship is contractual rather than a traditional employment relationship.
At the same time, the statute has specific requirements concerning the principal, the nature of the products, and sales activity. Classification, therefore, cannot be determined from one label alone.
Why Does the Distinction Matter?
The distinction can affect which laws apply and how a commission claim should be evaluated.
For example, MCL 600.2961 establishes rules concerning when qualifying commissions become due. It generally requires commissions due at termination to be paid within 45 days and commissions becoming due afterward to be paid within 45 days after they become due. It also provides potential additional damages for an intentional failure to pay and allows the prevailing party to recover reasonable attorney fees and costs.
A different legal framework may apply to other types of compensation disputes.
The agreement also matters. A salesperson classified as an independent contractor may have a services agreement establishing specific commission terms. An employee may have an employment agreement and a separate commission plan. In either situation, the actual language can determine when a commission was earned.
What Factors Can Help Establish the Relationship?
Documents and business records may help establish how the parties actually operated. Depending on the circumstances, relevant evidence may include:
- The written employment or independent contractor agreement
- Commission plans
- Instructions concerning sales activities
- Reporting requirements
- Who controlled the salesperson’s schedule
- Who supplied equipment and business resources
- Whether the salesperson could work for other companies
- How the salesperson was paid
- Expense arrangements
- Tax and payroll records
- Communications concerning the relationship
Commission Disputes Require More Than Looking at the Job Title
A salesperson denied commissions should preserve the agreement, commission plan, sales records, and communications about disputed transactions. A company facing a commission claim should likewise review the governing agreement and the actual structure of the sales relationship before deciding how to respond.
For more information about Michigan commission disputes, contact the attorneys in our August Law sales commissions conflict team.