Commissions & Bonuses

Sales commissions and performance-based bonuses form an important component of the annual compensation received by many Texas employees, including those in the real estate, financial services, brokerage, private equities, pharmaceutical, and other sales-related industries.

In general, Texas employers have wide discretion to implement and modify the terms of a commission plan or bonus agreement, but generally cannot interfere with an employee’s earned commissions.A frequent dispute arises when an employer announces changes to an employee’s existing commission plan or bonus agreement, and when an employee is either terminated or resigns before payment is made.

In the context of commission or bonus agreement modifications, an employee's conduct--including the decision to continue the employment relationship after unequivocal notice that the employer is implementing the change--may result in the employee's forfeiture of rights under the former plan or agreement.

The more common dispute arises when an employee is terminated or resigns before a commission or bonus payment is due or paid. Whether an employee may recover commissions and bonuses after termination is based on a number of factors, including:

• Whether the commission plan is oral or in writing;
• The clarity of the commission plan’s terms;
• The plan’s definition of when a commission is earned or accrues;
• The duties, if any, needed to be performed to complete the sale at the time of the employee’s departure;
• The employer’s custom or practice of paying commissions and bonuses to departed employees; and
• Whether the employer involuntarily discharged the employee with good cause or the employee voluntarily resigned.

Three Things to Remember

While an employee's entitlement to unpaid commissions and bonuses requires a case-by-case legal analysis, certain general rules may be applicable:

1. Employees who voluntarily resign before performing substantial duties generally may not be entitled to recover commissions after departure;
2. Employees who have been involuntarily terminated may be entitled to recover either a pro rata share of the commission or, in some cases, the full commission, depending on the commission plan’s terms; and
3. Vague and ambiguous commission plan terms may be construed against the employer in situations where the employer drafted the plan.

An employee who is denied commissions or bonuses may be able to proceed with a breach of contract claim and, under appropriate circumstances, fraud.Under Texas law, a prevailing plaintiff represented by an attorney in a breach of contract action may be able to recover his/her reasonable attorneys’ fees, court costs, and interest.In the absence of an express agreement or contract, an employee may still be able to recover his/her unpaid commissions or bonuses under the theory of promissory estoppel or quantum meruit.

Dallas employment lawyer Barry Hersh dedicates a significant part of his practice to resolving Texas compensation disputes with a special focus on disputes between employees and employers for unpaid commissions and bonuses.If you believe that you are entitled to unpaid commissions or bonuses, complete the law firm’s online inquiry form. Employees who received commissions but only performed inside sales responsibilities also may be entitled to overtime pay.

• Get your commission/bonus agreement in writing!
• If you can't get it in writing, e-mail the company confirming the relevant commission/bonus terms of the parties' understanding. Be sure to confirm whether you will be paid commission/bonus monies in the event of termination. Kindly ask the company's representative to reply immediately if your written description of the parties' agreement is not accurate.
• Keep a copy of your written commission/bonus agreement at home.
• Seek legal advice from a Dallas employment lawyer as soon as possible after you're terminated. Your options may be limited if you fail to act promptly.