Sales representatives, whether they are employees or independent contractors, are too frequently faced with situations where the businesses which owe them commissions refuse to pay them or refuse to pay them the full amounts owed. While, unfortunately, sales representatives do sometimes get beaten out of commissions which they are rightfully owed, sales representatives should take a hard look at their situations before giving up on receiving payment for sales commissions.
Here are some legal points for sales reps to consider when faced with a refusal to pay:
A VERBAL CONTRACT TO PAY COMMISSIONS IS ENFORCEABLE
We have had several cases over the years where a sales representative was not paid and where the refusal to pay was on the basis that there was no written agreement to pay or to pay the percentage which was claimed to be owed. In such cases, sales reps should bear in mind that an agreement to pay commissions does not have to be in writing. Under Tennessee law, oral or verbal agreements to pay commissions are just as enforceable as written ones. The problem with oral contracts is that people lie or, to be more euphemistic, they remember things differently.
The problem of the party who owes the commission remembering the parties’ agreement differently can sometimes be overcome by evidence of the parties’ course of conduct. For example, we had a case where a manufacturer claimed that it did not have a written agreement to pay its manufacturer’s representative commissions on pre-fabricated metal building materials. The manufacturer’s defense fell apart because our client had information on the total value of each sale he had made and he had copies of checks from the manufacturer which showed that, for over two years, he had been paid the percentage he claimed he was owed on all of the projects he sold. While most defenses don’t fall apart that easily, that case demonstrates how a course of conduct can make it difficult for a manufacturer, employer or other business to renege on the payment of sales commissions.