Maryland Court of Appeals protects a salesperson's right to commissions upon termination
Employers Are Liable for All Commissions Earned - Even When the Employee Leaves the Company
In two recent decisions Maryland's highest court has strengthened the rights of employees to collect commissions they earn. Some employers have commission plans that provide that an employee forfeits commissions that are not paid by the time the salesperson leaves the company. The Court of Appeals of Maryland held, in Medex v. McCabe, that such forfeiture provisions are against Maryland's public policy and are unenforceable. The Court held: "Contractual language between the parties cannot be used to eliminate the requirement and public policy that employees have a right to be compensated for their efforts." The final holding of the Court was that commissions earned before an employee departs the company must still be paid - even if the employee signed a contract that states otherwise.
Court of Appeals decision
In Baltimore Harbor Charters, Ltd. v. Ayd, 780 A.2d 303 (2001) the Court of Appeals also strengthened employee rights by affirming that an employer that wrongfully withholds commissions may be liable for up to three times the amount of commissions wrongfully withheld. The Court held that a jury must be allowed to decide whether there is a bona fide dispute about the commissions. If there is no bona fide dispute, the jury is permitted to award up to three times the amount of wrongfully withheld commissions or wages. Additionally, the Court may require the employer to pay the salesperson's attorneys fees.
What to do
In short, these two cases have strengthened the rights of commissioned salespersons in Maryland. No longer may an employer fire a salesperson and withhold earned commissions. Salespersons, on the other hand, should be diligent in protecting their claims to commissions by keeping good records. Moreover, a reasonable reading of these cases is that a bonus that is based on a formula and is not purely discretionary may also be recoverable even if the employee is fired or quits before it is paid.