The United States District Court for the Northern District of Tennessee decided against a former employee in a breach of contract case for failure to pay sales commissions on the grounds that he was required to do more than just connect the new customer with his employer (“Employer”). It should be noted, at the outset, that this case turned largely on the specific language of the former employee’s employment contract, and should not be taken as establishing a general rule that independent sales representatives and employees cannot collect commissions for just initiating the contact with the new customer. In some cases, they can.
Even though the case, Jackson v. Maine Pointe, LLC, 2018 WL 1371488, was decided largely on its unique facts, valuable lessons for commissioned sales representatives and employees can be derived from an understanding of what happened in the case. Perhaps the most important lesson is how important it is for employees and representatives to pay attention to the terms of their written commission agreements and, where possible, to bargain for terms that leave no doubt about when they are entitled to be paid commissions.
Here are the key facts of the case:
- Jackson was an at-will employee of a company which specialized in operations consulting
- Jackson’s position was Vice-President of Food and Beverage
- Jackson’s offer letter provided that Employer would pay him commissions of 7% for “sales of $0 to $6,000,000” and 8% for “sales of $6,000,001 and above” for “New Name Client Work Developed by you”
- The specific language about commissions, which became critical, provided: “You will be eligible to earn sales commissions on collected engagement revenue (not analysis, nor reimbursed T&E Revenue … All commissions are paid monthly as project revenue is collected . . . “
- While employed, Jackson identified Colony Brands as a potential customer for Employer
- Jackson agreed to pay a referral fee of 1.5% to another employee of Employer who had a relationship with Colony Brands for helping Jackson connect with Colony Brands
- Just days prior to his termination from employment with Employer, Jackson sent an email to, and left a voicemail with, a contact at Colony Brands
- After Jackson was terminated, another employee of Employer resent Jackson’s email to the contact at Colony Brands, a Mr. Hughes
- Mr. Hughes responded to the email and even referenced Mr. Jackson’s name in his response
- Thereafter, other employees of Employer met with Mr. Hughes, and Colony Brands ultimately paid $6.3 million to Employer
- The employees who met with Colony Brands and brought the contract with it to fruition were paid commissions and the employee to whom Jackson had promised a 1.5% commission as a referral fee was paid that amount
- Jackson received no commission whatsoever
Jackson filed a breach of contract lawsuit against Employer. He argued that he was entitled to the agreed commission from the Colony Brands’ business because he had procured the business. His former Employer argued that, under the terms of the written employment/commission agreement, to be entitled to a commission, Jackson had to do more than just “procure” the business — he had to “develop” it.