Thanks to all who came to our Labor & Employment seminar on Thursday. Our biggest crowd yet. In it, we talked about the importance of offer letters. Marc Herman returns today with a post updating us on a recent Connecticut Supreme Court decision that came out while I was on vacation a while back that makes that point even clearer.
Picture this: Jill works for you. You fire her as an at-will employee. Two weeks later, you receive a letter from Jill claiming that she is owed commission for several sales that she completed prior to her termination.
What should you do?
Let’s look at her offer letter. That it usually a good starting place.
Blah, blah, blah. . . ah, something about commission. Let’s see what it says:
Commission is only paid once work has been performed and invoiced to the client. Upon termination of employment, all commissions cease, except those commissions that have been invoiced to the client.
You look again at Jill’s letter and look-up her recent sales. You realize that the commission to which she refers relates to sales that had not yet been invoiced to the client when Jill was fired.
You excitedly draft a response to Jill – “Sorry, Jill – you’re out of luck!” (or words to that effect — your lawyer can probably help with the wording).
Jill sues you. She argues that you owe her money. Moreover, she argues that the commission provision is unenforceable as a matter of public policy — “you can’t deprive me of commission that I worked hard for!”
Well, in a recent decision, the Connecticut Supreme Court concluded that provisions like the one above may be enforceable — and that employers may not have to pay a commission because of the language used in the offer letter.
In Geysen v. Securitas Security Services USA, Inc. (bearing facts very similar to Jill’s), a former employee argued that such compensation provisions are unenforceable as a matter of public policy and therefore his former employer had violated the law by not paying him commission.
The trial court agreed.
On appeal, the CT Supreme Court issued a thoughtful decision. It made two main points:
Point One: Parties should have the freedom to make contracts with unfavorable terms.
Point Two: You cannot draft a contract that simply tries to work-around the law. They violate public policy — A big no-no.
So what about provisions like the one above?
The easiest answer is that such provisions should pass legal muster. Sure, it may contain terms that favor the employer, but that’s ok because the parties bargained for it. Nor is it a work-around the law; the law simply requires that employers pay employees in accordance with any agreement.
After concluding that the provision was enforceable, the Court read it literally: no commission due. The Plaintiff’s hard work aside, he had previously agreed that no commission would be “due” prior to the client being invoiced.
The Court also agreed with the defendant-employer that the employee’s claim of wrongful discharge (as a matter of public policy) was also without merit. No violation of public policy and therefore no wrongful discharge.
Note, however: the Court left open the possibility that such practices could amount to a breach of the implied covenant of good faith and fair dealing. This really concerns the employer’s motive.
For example, an employer’s motive for firing an employee was simply to avoid paying commission, that would be a breach of the implied covenant of good faith.
What’s the lesson here? Agreements with employees are not unenforceable simply because they may seem unfair to the employee. However, apply caution in drafting agreements that seek to work-around the law.
Freedom of contract is alive and well. . . for now.