Washington's Definition of "Sales Representative" in Commission Law Provides Limited Protection for Employers
Mar 17, 2023
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Nearly two years have passed since Washington’s laws significantly changed on payment of bonus incentives and commission plans for wholesale sales representatives. The law, effective in 2020, prohibits certain employers from premising payment of an “earned commission” on the sales representatives’ current status as an employee or contractor.
The primary area of confusion since the passage to the law involves questions about to whom the law applies. Former employees, upon termination or resignation, want to know if they are entitled to the commission they would have been paid had employment continued. Employers want to know too, particularly upon receipt of a demand for payment from a former employee.
Technically, the two-year-old law applies to a limited set of commission-based employees:
The focus on “wholesale” in the law does not mean, however, that a person selling a good or service who does not fit within RCW 49.48.150(3)’s definition of “sales representative” is out of luck, or that the employer is off the hook. It simply means that those employers who employ sales representatives who do not meet the definition are not explicitly prohibited from conditioning current employment on whether a commission has been “earned.” Further, many commission plans fail entirely to define when a commission is considered “earned;” in those cases, the former employee may stake a claim on the future commissions regardless of how “sales representative” is defined within the statute.
If you have specific questions about your employment contracts, contact Rachael Wallace of the Stokes Lawrence Employment Group.
The primary area of confusion since the passage to the law involves questions about to whom the law applies. Former employees, upon termination or resignation, want to know if they are entitled to the commission they would have been paid had employment continued. Employers want to know too, particularly upon receipt of a demand for payment from a former employee.
Technically, the two-year-old law applies to a limited set of commission-based employees:
“Sales representative” means a person who solicits, on behalf of a principal, orders for the purchase at wholesale of the principal's product, but does not include a person who places orders for his or her own account for resale, or purchases for his or her own account for resale, or sells or takes orders for the direct sale of products to the ultimate consumer.
Thus, this law defines a sales representative as only those persons who take orders for a wholesale product that the buyer intends to re-sell. The text of the definition excludes representatives who take direct orders for goods sold to the end consumer. Still, some types of sales representatives who are not traditionally considered “wholesale” sales representatives may still fall under the definition. For example, a sales representative selling equipment that is subsequently rented out to third parties—such as those selling specialized medical equipment in which any use is billed back to the patient or their insurer—may constitute a “sales representative” for the purpose of the law’s definition. The focus on “wholesale” in the law does not mean, however, that a person selling a good or service who does not fit within RCW 49.48.150(3)’s definition of “sales representative” is out of luck, or that the employer is off the hook. It simply means that those employers who employ sales representatives who do not meet the definition are not explicitly prohibited from conditioning current employment on whether a commission has been “earned.” Further, many commission plans fail entirely to define when a commission is considered “earned;” in those cases, the former employee may stake a claim on the future commissions regardless of how “sales representative” is defined within the statute.
If you have specific questions about your employment contracts, contact Rachael Wallace of the Stokes Lawrence Employment Group.
