Commission Disputes

We frequently receive calls from employees and former employees complaining that their employer has failed to pay them a promised commission. It’s not uncommon for employers to make big promises in order to secure or retain talented workers only to have second thoughts when the employees earn a substantial commission. Fortunately, Kentucky law prohibits such bait and switch tactics.

The Kentucky Wage and Hour Act protects every employee’s right to be paid all agreed wages in a timely manner. The act specifically includes commissions in its definition of wages. Employers who fail to timely pay commissions are subject to penalties. Employees who have not been timely paid their commissions may file a lawsuit in Kentucky Circuit Court. If the employee prevails, they are entitled to recover the overdue commissions, attorney fees, and in most cases, statutory liquidated damages (up to double the amount of the overdue commissions). In some circumstances, the employer may avoid payment of liquidated damages. To avoid paying liquidated damages, the employer must show it had a good faith, but an ultimately mistaken belief that it did not owe the commissions.

Many commissioned based workers are classified as independent contractors by the businesses they work for. Kentucky’s Wage and Hour Act does not cover salespeople who are truly independent contractors. However, just because the employer categorizes and pays the salesperson as an independent contractor does not necessarily mean the worker is an independent contractor for Wage and Hour Purposes. Oftentimes employees who are paid as independent contractors are considered employees for purposes of the act.

Whether the worker is an employee or an independent contractor, it is still grossly unfair for a business to change or attempt to change a commission agreement after the worker has earned the compensation. As such, independent contractors are not without remedy. They can of course sue for breaching the commission agreement. Unfortunately, the penalties and liquidated damages provided by the Kentucky Wage and Hour Act are not available as a deterrent to employers who unfairly try to get out of paying what they owe.

A number of states passed sales representative acts specifically to protect independent contractors working in sales-on-commission agreements. Sales representative acts generally provide remedies that mirror the remedies available to employees under the Wage and Hour Act, including liquidated damages and attorney fees. Kentucky has such an act, but it was drafted to apply only to out-of-state companies contracting with salespeople in Kentucky. Because the act treats out-of-state companies less favorably than in-state companies it violates the United States constitution and is unenforceable. We hope the Kentucky legislature will address the problems with the act and pass new legislation, which will discourage businesses from attempting to avoid paying commissions earned by independent contractors.

Complex questions often arise when an employee entitled to commissions leaves his or her employment. Disputes usually concern when the commission was earned and whether the employer has any obligation to pay future commissions. Questions about timing and the effect of separation on the right to commissions are generally determined by the terms of the commission agreement. Often the commission agreement or understanding is not clearly spelled out, which almost invariably leads to disputes.

If you are an employee entitled to a commission you have not received, give us a call. We will be happy to discuss your case.

We also assist many small businesses in staying out of court by making sure they have clear commission agreements that can be easily applied.

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