Tennessee Business Litigation Lawyers Blog
For salespeople, brokers, and agents who derive a substantial part, if not all, of their income from commissions, knowing something about Tennessee law on the subject of future commissions is worthwhile. By future commissions, I am referring, broadly, to commissions that become due after an account is established, but while the relationship between the organization that originally agreed to pay the commission and the salesperson, broker or agent is intact. I am also referring to commissions which accrue after the salesperson, broker or agent has terminated their relationship with the organization that agreed to pay commissions.
The best way for a salesperson, broker or agent in Tennessee to avoid the headaches, uncertainty and expense of a breach of contract lawsuit to recover future commissions is to make sure that there is a clear, written agreement which outlines specifically the circumstances under which future commissions are owed. In the absence of any written agreement which clearly sets forth the agreement of the parties as to future commissions, parties involved in cases about future commissions are likely to become embroiled in a legal slugfest about what was agreed to between the parties and who said what.
I have seen many employment agreements which make it crystal clear that, once the employer terminates the employee, or once the employment relationship is terminated for whatever reason, the employer will owe no future commissions even from accounts or business generated by the terminated employee. These types of provisions are enforceable. Agreements between organizations agreeing to pay commissions and independent contractors, or other non-employees, often contain similar provisions which restrict the right to future commissions once the relationship is terminated.
Employees and independent contractors, such as agents and brokers, should be very attentive to the provisions of written agreements dealing with future commissions. What happens if the agreement, whether it is written or oral, does not even address future commissions? In Tennessee, there is case law which supports the position that future commissions should be paid. For example, take a look at the case of Pinson & Associates v. Kreal, a decision of the Court of Appeals of Tennessee.
If the parties did not address future commissions, for how long might a Tennessee court determine that commissions should be paid? What if the business or account originated by the terminated employee or independent contractor, agent, or broker continues to generate revenue for many years in the future? The answer to this question is: It will depend on the unique circumstances of each case. There is no bright line rule for Tennessee courts to apply in such situations. Factors that might come into play include, but would not necessarily be limited to: Was it necessary to compensate a new person to deal with the account, or did the revenue just keep coming without much effort on the part of the party receiving it? Were the products or services ordered from the customer similar to the ones it ordered when the business was first generated? How crucial was the salesperson, broker, or agent to the account being acquired in the first place?
When negotiating commission agreements, a workable compromise is often to agree that, once the relationship is terminated, commissions will be paid from accounts originated by the employee, broker or agent for a certain period of time. Depending on the leverage of the parties, that time could be anywhere from a few months to many years.
If the agreement with which you are involved lacks certainty as to the obligation to pay future commissions, you should consult with an experienced Tennessee commercial litigator before deciding to walk away from future commissions, or deciding to pay them.