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A Better Partnership

Publications

Oct 2002
01
October 01, 2002

Failure to Pay Sales Commissions Results in Treble Damages Plus Attorney Fees

A manufacturer who failed to pay commissions that it knew were due to an independent sales representative ended up paying more—much more. In Peters v. Gunnell, Inc., Nos. 230721, 231661 (Mich. Ct. App. Sept. 27, 2002), Gunnell failed to pay a former independent sales representative some $8,100 in commissions that it knew he had earned under the parties' agreement. The Company initially cited cash flow problems as the reason it did not pay. After Peters sued for his commissions under Michigan's Sales Representative Commission Act, the Company attempted to justify its actions by claiming that Peters failed to return certain product samples that were in his possession. A trial court ruled in favor of Peters and awarded him $8,102 in commissions, plus $16,204 in statutory damages and $7,388 in attorney fees and costs. Gunnell challenged the award by claiming (1) that its actions were not in "bad faith" and (2) that it should have been allowed an offset from commissions owed for the unreturned product samples. The court rejected both arguments. It first held that the Commissions Act awards not only actual damages for unpaid commissions, but statutory double damages if the nonpayment was "intentional." "Intentional," according to the court, does not mean the same thing as "bad faith" and since Gunnell knew the commissions were due and still did not pay them, its conduct was intentional. Second, the court held that nothing in the Commissions Act allows for a principal to reduce commissions by the amount of expenses that might later be owed by a sales representative. Although Gunnell's contract with Peters allowed it to offset the cost of product samples against commissions, the court rejected this argument because Gunnell had consistently claimed that it did not pay Peters his commissions because of cash flow problems and not because of any alleged unreturned product samples.

As Gunnell found out, the Commissions Act imposes stiff penalties on manufacturers and employers who don't pay commissions to sales representatives (including employees) within 45 days of termination of the relationship. This is true even though the sales representative may owe the principal for product samples or other expenses. The same rule applies under Michigan's Payment of Wages Act when terminating an employee: unless you have a signed authorization allowing you to make a deduction, you should pay the employee all wages due even though s/he is in possession of Company property.

For more information, contact Rob Dubault at rdubault@wnj.com or call him directly at 231.727.2638.
 

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