Legal Updates

New York Now Requires Salesperson Commission Agreements to Be in Writing

Effective October 16, 2007, New York state law requires all salesperson commission plans, regardless of the particular industry, to be memorialized in a “writing” signed by both the employer and the salesperson.

To satisfy the law’s requirements, the writing must:

• describe how wages, salary, draw on commissions, commissions, and all other amounts earned and payable are to be calculated;

• if the writing provides for a recoverable draw, then the writing must state the frequency of reconciliation between draw and earned commissions; and

• describe what happens upon termination of the salesperson’s employment to wages, salary, draw, commissions and all other monies earned and payable.

Employers must retain these writings for at least three years and provide copies to the New York State Department of Labor upon request.

The law defines commissioned salespersons as “any employee whose principal activity is the selling of any goods, wares, merchandise, services, real estate, securities, insurance or any article of thing and whose earnings are based in whole or in part on commissions.”  It does not include “any employee whose principal activity is of a supervisory, managerial, executive or administrative nature.”  N.Y. Lab. Law § 190(6).

Significantly, an employer’s failure to draft the required writing or to update an existing one will create a presumption that the sales person’s description of the commission structure, rather than the employer’s explanation, is accurate.  This presumption will create a significant obstacle for non-compliant employers as commissions disputes arise.

Also, please note that plaintiffs with successful commissions claims under New York law will be entitled to attorneys’ fees and damages (including an additional 25% as liquidated damages), which could serve to increase the number of claims that arise where commissions have not been properly documented, as required by New York law.

Thus, we strongly recommend that any employers with commissioned salespeople in New York immediately review existing commission plans to determine whether the plans satisfy all the requirements of this New York law, and that amending any non-compliant plans should be a top priority.

In addition, as commission claims seem to be on the rise everywhere, often as an adjunct to other employment claims, we recommend that all employers with commissioned salespeople, in any state, implement and maintain clear, legally-compliant, written commission plans, signed by affected employees.  Defending breach of contract and commissions claims, without the benefit of a legally-compliant, signed commission plan, can be unduly difficult.  Therefore, these plans should be reviewed to ensure compliance with state law, and to clearly set employee expectations and provide for consistency and clarity.