Jonathan Cooper’s Blog

The answer to this question is not always clear-cut. Some of the more critical questions - which you should ask your attorney - are as follows:

(1)    What is the cost to me if I sue? 

(2)    What is the cost to me if I DON’T sue?  

(3)    What is the likely outcome if I sue?

For more information on this topic, please feel free to read an article of mine that was recently published on this subject at http://www.articlesbase.com/business-articles/can-you-afford-not-to-sue–675423.html

 

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.

In our prior article entitled “5 Rules to Succeed in Filing an Insurance Claim,” we provided tips to avoid some of the insurance industry’s favorite gambits for denying rightful claims, including the insurer’s receiving late notice of the claim. But let’s say you made a mistake, and failed to timely notify your insurer about the claim. Should you meekly accept defeat, and walk away with your tail held squarely between your legs? Assuming that the claim is of significant value, the answer to this question should be a resounding “NO — NOT WITHOUT A FIGHT!”

Although you could theoretically appeal the insurer’s denial of claim to your State’s Insurance Department, I have found this step to be a waste of time, money and effort.  Your resources will be far better spent in court.  That being said, your likelihood of success in contesting the insurer’s denial of coverage in court will be largely dependent on the particular facts of your case, and naturally, some of these defenses are more difficult to prove than others.  To help you make a more intelligent assessment of your chances, following is a list of possible challenges to the denial:

1) No prejudice, no denial - At the end of July, New York State Governor David Paterson signed into law new legislation that will bar insurers from disclaiming coverage for late claims unless they can demonstrate they were “materially prejudiced” by the delay. (Until the new law takes effect in mid-January, 2009, the rule remains that an insurer may deny claims on the grounds of late notice regardless of whether or not the insurer suffered harm by the delay.)

2) Lack of Knowledge of Injury - One justification for providing late notice of the claim is that was no reasonable basis to conclude that anyone was injured in the accident.  Bear in mind that this is not an easy burden of proof to satisfy, because the courts have held that in an accident where the property damage totaled just over $700, the insured was obligated to notify his insurer about the potential for a personal injury claim.

3) Lack of Knowledge of Accident - although somewhat self-evident, if you had no reason to know that an accident occurred, you are not obligated to report it to your insurance carrier.  Stated differently, you can’t report what you don’t know.

4) “They Would Never Sue Me — Would They?” - New York’s highest court has held that where it does not appear that any permanent injury has been sustained, and the nature of the relationship between the injured party and the insured (such as a close familial relationship) was such that the insured had reasonably believed that they would have been apprised if the injured party had been contemplating a lawsuit, late notice of the claim may be excused.

5) Lack of Knowledge of Coverage - New York’s courts have found justifiable an insured’s late notice of claim where the delay was caused by the insurance broker’s faulty advice that the policy had been cancelled. Similarly, the courts have deemed reasonable an insured’s untimely notice where the insured belatedly discovered that the defects in the workmanship of its products were caused by industrial sabotage, and there was substantial confusion as to which insurance policy was implicated.

6) Incapacity of the Insured - Finally, although infancy or illness do not, standing alone, toll the time within which the insured must provide notice of the claim, the courts have excused the timely notice requirement where the insured, a person of “limited personal and vocational backgrounds,” was misinformed by the agent of the insurer that coverage was provided under a policy issued by another company. Likewise, the courts exempted an insured from the timely notice requirement where her physical condition rendered her completely dependent on others, and she had relied upon what the driver, her nephew, told her about the accident.

In sum, your insurer’s denial of coverage for your late notice of claim need not be the final word on the matter. Under the right conditions, you retain the power to contest the denial - and win.

Over the last few years, e-mail has largely replaced “snail mail” as the standard means of communication, as its speed and ease of use are vastly superior (not to mention more cost-effective and environmentally friendly). This revolution is not without its drawbacks, however.

First, almost everyone I know has, at one time or another, mistakenly hit the wrong button, and sent a sensitive e-mail to the wrong person.

Second, as New York’s courts have increasingly made clear, many small business owners remain unaware that their seemingly innocuous e-mails can have far-reaching legal consequences for their businesses. Indeed, New York’s highest court has ruled that a foreign business can be sued in New York if its e-mails seek to engage in a “sustained and substantial transaction of business” in the State. And that remains true even if the business never entered New York State.

In a parallel vein, although many states still require a “subscribed writing” before a contract may be deemed valid, it bears mention that the legislatures and courts are recognizing with increasing frequency the validity of electronic documents, i.e., those that do not bear a handwritten signature (See, e.g., the Electronic Signatures in Global and National Commerce Act, 15 U.S.C. §§7001-7006, and the New York State Electronic Signatures and Records Act). That being said, here are three (3) more traps to avoid when negotiating a business deal:

(1) Never Do Business on a “Handshake”

Ironically, the handshake deal did not begin with a show of trust in the other side to a deal; it originated from each party trying to assure the other that neither was carrying a weapon.  The same holds true today:  If the other side is not willing to reduce a fair agreement to writing, you should not be willing to do business with them. Simply put, it is unreasonable to ask you to risk the financial security of your family and employees on a relative stranger’s “good will.”

Moreover, notwithstanding the courts’ growing recognition of unsigned electronic documents, oral contracts are still not binding under many circumstances and in many jurisdictions.  Consequently, absent a signed agreement, you may be left without any recourse if a dispute arises later about the other side’s performance (or failure to perform) under the agreement. Stated plainly, there is little to no justification for failing to assure that you have a signed agreement.

(2) Remember That Silence Does Not Equal Assent

Although this should be self-evident, unless it is established in concrete terms what the other side is willing to do for you in return for your services or payment, you cannot have a “meeting of the minds” between the parties. And without a meeting of the minds, there is no agreement.

(3) A Well-Detailed Agreement Will Save You Both Time and Money

A detailed agreement that “dots each ‘I’” and “crosses each ‘T’” may prove somewhat tedious, and will cost you a modest sum of money in the short term. But the better-crafted agreement which specifies each party’s obligations will not only afford greater protection for your assets and reduce your potential liabilities, it will diminish, if not eliminate, uncertainty and misunderstandings between the parties, and therefore, help prevent litigation, which almost certainly would prove far more costly.

1.  Make sure you have insurance that covers this type of claim - before the claim occurs. Although this may sound overly simplistic and obvious, it is probably worthwhile to spend an hour or two going through your insurance to determine what is actually covered by those policies, and perhaps more importantly, what is NOT covered by those policies.

2.  Make Sure You Follow the Policy’s Claims Reporting Guidelines.  Having taken your hard-earned money in insurance premiums, you would think that the insurers would step up and pay your claim promptly. Although that could happen, don’t bank on it.  A favorite insurance company gambit is to deny claims that do not strictly comply with their reporting requirements.  That brings us to our next rule …

3.  Report Your Claim Promptly. New York’s insurance laws and regulations generally allow insurers to disclaim coverage for claims that are not reported “as soon as practicable” after the claim arose.  Although a definitive time period has not been etched in stone, this has been often interpreted as being no more than 30 days post-incident.

4.  Photograph the Evidence. If your claim is for damage to your property or car, make sure to get your own photographs of the damage before these items are removed from your sight - forever.

5.  Document All Damage. Spending one extra hour now will save you a lot more time and heartache 6 months or a year from now when you can’t remember what happened to that favorite throw pillow you got from Aunt Phyllis. Perhaps one of the best (and easiest) ways to catalog your losses would be to download the free software at www.knowyourstuff.org.

One final thought:  although many articles on these topics, particularly regarding the insurance industry suggest that even mentioning the word “lawyer” may hurt your relationship with the insurer, and hurt your chances to resolve your claim, consider this: if that were true, why aren’t there much fewer trial lawyers?

The truth is, the insurers will likely pay an insured more money after they’ve “lawyered up” than before, if for no other reason than to avoid defending costly litigation.

 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.