Jonathan Cooper’s Blog

Although several of the small business owners I have encountered in the past few years thought they were immune from being sued for unpaid commissions by their salespeople, they learned — too late — that New York’s Labor laws dictated otherwise. As part of their Monday morning quarterbacking, these business owners came to realize that had they invested a modest amount of additional time and resources into drafting a comprehensive and clear commission agreement in the first place, they certainly would not face exposure to paying commissions at a salesman’s wished upon (rather than agreed upon) terms, and perhaps could have prevented litigation altogether. After some further analysis, it seems that these business owners’ surprise (and Achilles’ heel) was the product of their belief in one or more of the following myths:

Myth #1 - Signing bonuses are inherently discretionary - New York’s courts have held that where a signing bonus is guaranteed as a term of employment that is tied to the salesperson’s job performance (such as the sale of a new account), and further, is not expressly made subject to management’s discretion, the bonus is deemed wages under the Labor Law, and thus, cannot be forfeited if earned prior to termination and/or resignation.

Myth #2 - “If it Isn’t Written, It Doesn’t Exist - contrary to popular belief, just because a commission agreement is oral doesn’t necessarily mean it is unenforceable.  In that regard, while an employer can change the terms of an at-will employee’s agreement prospectively, it cannot change the terms of the agreement retrospectively. Simply put, once the salesperson has already earned commissions at an agreed upon rate, the employer cannot go back and refuse to pay those commissions.

Myth #3 - Termination for Cause Is Cause for Forfeiture of Commissions - New York’s Labor Law clearly states that commissions which are earned during employment (i.e., vested), cannot be forfeited as a matter of public policy.

Myth #4 - If It Isn’t Clear from the Contract that a Commission is Owed, the Salesperson Can’t Collect - a fundamental, and nearly uniform rule of law is that any ambiguity in a contract is construed against the drafter of the contract. As a practical matter, this means that the courts are obliged to side with the salesperson with regard to any provision in the agreement that does not make it patently clear as to whether, and if so, how much, commissions are owed for a particular sale.

As the foregoing makes clear, it certainly pays to have well-crafted and clear agreements with commission salespeople. The short-term cost in time and money will not only help avert misunderstandings, and thus safeguard company morale, but will likely save you untold sums of money by either minimizing, or preventing entirely, the costs of litigation.

When any of us purchases an insurance policy, we pay premiums with the rightful expectation that in the event that, G-d forbid, we ever need to file a claim, the insurance company will honor their end of the bargain, and pay the claim. In the wake of several tragic events, including the September 11 attacks and Hurricane Katrina, the insurance industry has been crying about their unfair burden in having to pay on all these claims. The truth is, however, that despite accepting and investing their insureds’ premiums for years before, the insurance industry continues to seek nearly any and all means to avoid paying on these claims.

Even worse, according a Consumer Federation of America review of figures from rating service A.M. Best. The percentage of premium dollars insurers collect that is paid out in claims fell from an average of 81% in the 1980s and 79.8% in the 1990s to just 68.3% last year, the lowest level in at least 26 years and perhaps the lowest since the 1950s. At the same time, property/casualty insurers have been posting record profits.

So how do you protect yourself from an unethical insurer?

No method is foolproof, but it should come as no surprise that some insurers have better repuatations than others for dealing fairly with their insureds. For example, you can search the New York State Insurance Department’s Rankings of Automobile Insurers at http://www.ins.state.ny.us/auto/2007/ark2007.pdf

Second, and this is ALWAYS applicable, make sure you comply strictly with all provisions of your insurance contract in connection with your claim — even if the requirements seem ridiculous. In particular, make sure that you notify your insurer PROMPTLY of all claims (or potential claims) - preferably in writing and with written confirmation of receipt by the insurer (one of the insurers’ favorite — and easiest — bases for denying claims is that they did not receive timely notice of the claim). 

If you are not sure what the policy requires of you, call the insurer and ask them.

If you still are unsure or are dissatisfied with your insurer’s response, you should probably call a lawyer.

 1)                  You Fail to Timely Notify Your Insurer That You Have Been Sued 

Nearly all insurance policies require you to inform the company of a lawsuit, or even an anticipated claim, “as soon as practicable.”  The courts have generally interpreted this provision as requiring that the insurer be given written notice of the claim within 30 days; otherwise, the insurer may correctly deny your claim. In order to best protect your interests, I suggest that you forward the insurer a copy of the suit papers both by fax (so you have a fax confirmation sheet)  and by certified mail, return receipt requested to head off any claim by the insurer that they did not receive timely notice of the claim.

 2)                  You Fail to Procure Enough Insurance to Protect Your Assets  

For a difference of roughly $100-$200 a year, you can probably get an additional $200,000 worth of liability insurance; for roughly $300 a year, you can get a $1 million umbrella policy. Very often, people look to save a few dollars on their insurance, and purchase minimum policies that leave their assets, such as their home and bank accounts exposed. This is pure foolishness. Simply put, at these low prices, you cannot afford not to purchase this additional insurance.

 3)                  “Since this Case is Frivolous, I Will Just Ignore it and it Will Go Away.”  

Ignoring the lawsuit will not make it go away – it will only make it far worse.  You may not want to spend the money to hire a lawyer to defend your interests (again, this assumes that your insurer is not defending you), but if you don’t, you will end up with a default judgment against you that prevents you from demonstrating that this claim is meritless. Further, you may end up with a judgment that clouds the title to your home, shows up on your credit reports, and the sheriff may levy on your bank accounts.  

Yesterday, it was reported that Raelyn Campbell sued BestBuy for losing her laptop that was loaded with her personal information, including her income tax returns. And apparently, she only decided to sue them after BestBuy forced her to navigate miles of red tape before finally admitting they lost her computer, and even then, refusing to make a reasonable accommodation for her lost computer and information.  So, under the circumstances, her decision to sue is not unreasonable, right?

But she has now grabbed headlines by seeking $54 million in damages for her lost laptop, which probably cost no more than $1,500 - $2,500.  While I empathize with her frustration, it is cases like these that fuel the clarion call for damages caps and judicial reforms that go too far, and would unfairly penalize those individuals who are merely seeking fair and just compensation for their damages.

Although Raelyn Campbell seemingly has a valid claim, her shortsighted and headline-grabbing gambit undermines the claim and mocks the integrity of the judicial system.