New Washington State Law on Commissions Goes Into Effect June 11
Washington’s new law on payment of bonus incentives and commission plans for wholesale sales representatives, effective June 11, 2020, prohibits employers from conditioning payment of an “earned commission” on the sales representative maintaining their status as a current employee or contractor. Employers (or principals) should revisit their commission contracts to clearly define what is required to receive a commission, particularly where the sale arises from the efforts of more than one person.
“Earned commissions” must be paid to sales representatives no later than 30 days after receipt of payment for products or goods sold by the sales representative, including earned commissions not yet due when the contract is terminated. Industry practice for contracts with sales representatives has been to include contract language stating that a commission is not “earned” until payment on the sale is received. Some contracts also provide that a sales representative must be currently employed to be entitled to payment of commissions. Washington’s new law targets this commonly used contractual failsafe, providing:
Where a sales representative's efforts prior to termination of a contract results in a sale, regardless of when the sale occurs, the termination may not affect whether a commission is considered earned.
Provisions in any contract that establish payment of commissions contrary to the new law are void. Employers that tied contract terms for “earned commissions” to a sales representative’s current status with the company in commission plans will be faced with unenforceable contract provisions, even with respect to some past contracts. An employer that intends to define with certainty when and how commissions are paid should seek legal advice on commission plans and contracts to ensure that the courts are not left to decide for them.
The law also now provides that commissions deemed “withheld” constitute a wage violation, making employers (and any officer, vice principal, or agent of the employer) liable for double damages, costs of the suit and a reasonable sum for attorneys’ fees, and potential criminal penalties. The possibility of recovering double post-termination commissions, combined with the absence of risk in incurring attorneys’ fees and costs, will make pursuit of these claims more enticing.
The law requires written contracts with sales representatives who solicit wholesale orders. Employers should immediately update those contracts and commission plans to remove language considered void under the new law. Contract language should be updated or added based on the employer’s specific industry and company needs to re-define when commission is considered “earned” and to remove ties to current employment.
If you have specific questions about your employment contracts, contact a member of the Stokes Lawrence Employment Group.