Although it involves Texas law, a recent case illustrates the pitfalls an employer can face when former employees make claims for commissions or compensation after their employment has ended. It also offers suggestions on how employers with commissioned salespeople can avoid the same traps.
Sales Job with BMGL
Texas-based Baylor Miraca Genetics Laboratories, LLC (BMGL) developed and analyzed genetic tests that were sold to other labs and organizations. In 2015, Brandon Perthius became its vice president of sales and marketing.
In addition to earning an annual base salary of $145,000, Perthius was eligible to earn sales commissions. The two-page employment agreement BGML prepared and he signed stated he was employed “at-will.” It also provided the company would pay him a 3.5% commission for his “net sales.”
Natera Agreement and Perthius’ Firing
In 2015, Perthius successfully negotiated a lucrative contract between BMGL and Natera, Inc., one of its customers, which earned him a 3.5% sales commission under the contract. As the agreement neared its conclusion in 2016, BMGL directed Perthius to negotiate a contractual amendment that would extend its sales to Natera into the future.
After months of effort on Perthius’ part, he was successful in obtaining Natera’s agreement to both extend and increase its purchases of BGML products. The new contract was the largest in BGML’s history. Here’s what happened next:
- Thursday, January 19: Perthius advised BMGL leadership that Natera had agreed to the new contract.
- Later on the same day: BMGL’s CEO asked to meet with Perthius.
- Monday, January 23: At the meeting, BMGL fired Perthius.
- Tuesday, January 24: Natera signed the new agreement with BGML that Perthius had negotiated.
BMGL refused to pay Perthius any commissions from Natera sales that were “finalized” after he was fired. As it turned out, BMGL didn’t pay anyone commissions for those sales. Perthius sued his former employer for breaching the employment agreement and sought his 3.5% commission on Natera sales arising under the new contract that occurred after his termination.
Former Employee Gets His Commissions
The employment agreement between BMGL and Perthius wasn’t a monument to clarity. An unclear agreement drafted by an employer never works to the company’s advantage.
The commission provision in Perthius’ agreement didn’t define “net sales,” nor did it place any parameters on when his commissions were due and owing. For example, his employment agreement didn’t specify that commissions applied only to sales completed during his employment. BMGL was free to include limits on when and under what circumstances he was entitled to commissions, but it didn’t do so.
Unquestionably, Perthius was responsible for obtaining the new Natera contract. In the absence of any limiting language in the employment agreement, the Texas Supreme Court agreed with the former employee and decided he was entitled to commissions for Natera sales after he was fired. Perthius v. Baylor Miraca Genetics Laboratories, LLC, Case No. 21-0036 (Sup. Ct. Texas 2/2/22).
Don’t Make the Same Mistake
Whether a commission program is described in a contract or a policy issued by the employer, certainty on when and under what circumstances sales commissions are due and owing is critical. You can limit commission payments only for sales that have been closed or paid while the employee is still employed. If that is your intention, make sure any contract or policy addressing commissions specifically states the requirement.
Charlie Plumb is an attorney in the Tulsa, Oklahoma, office of McAfee & Taft. You can reach him at charlie.plumb@mcafeetaft.com.