Can an Employer Withhold Commission if You Quit?

For employees working in sales or roles with commission-based compensation, commissions often represent a significant portion of their income. However, questions about the legality of withholding commissions frequently arise when an employee decides to leave their job. Whether you resigned voluntarily or were terminated, understanding your rights regarding commission payments is crucial. Let’s discuss the legal frameworks, common scenarios, and actionable steps to address this issue.

What is Commission-Based Pay?

Commission-based pay refers to compensation tied to specific performance metrics, such as sales or client acquisition. Unlike hourly or salaried employees, individuals earning commissions often receive payments less frequently, sometimes even months or years after completing the work. This deferred structure can create vulnerabilities, particularly if an employer disputes the commission amount or withholds payment altogether.

General Rule: Commissions Are Wages

In many jurisdictions, commissions are legally classified as “wages” once they are earned. For example, in states like Oregon and Pennsylvania, labor laws explicitly protect employees’ rights to unpaid commissions. Employers cannot withhold wages, including commissions, unless specific legal conditions are met.

When Are Commissions Considered “Earned”?

Commissions are deemed “earned” when the employee fulfills the conditions set forth in their employment contract or compensation plan. This might include:

• Completing a sale.
• Delivering goods or services to a client.
• Receiving payment from the client, depending on contractual terms.

Once these conditions are satisfied, the commission becomes the employee’s rightful wage. Employers cannot retroactively alter the agreement to withhold earned commissions, even if the employee quits or is terminated.

Employer Obligations When You Quit

Immediate Payment Requirements

In most states, labor laws require employers to pay all earned wages, including commissions, promptly upon an employee’s resignation or termination. For instance:

• Oregon: Employers must pay all earned wages immediately upon termination.
• Pennsylvania: The Pennsylvania Wage Payment and Collection Law mandates that wages be paid by the next regular payday.

Written Notice for Disputes

If there’s a disagreement about the amount owed, employers are often required to provide written notice of the amount they believe is due and pay at least that amount within the legal timeframe. Accepting a partial payment does not waive the employee’s right to claim the remaining balance in court.

Penalties for Late Payments

Employers who fail to pay earned commissions within the stipulated time may face penalties. For example:

• In Pennsylvania, employees may be entitled to additional damages of 25% of the total unpaid amount or $500, whichever is greater, if wages are withheld for more than 30 days beyond the regular payday.

Can Employers Withhold Commissions?

Generally, employers cannot withhold commissions that an employee has already earned. However, there are exceptions and nuances to consider:

Contractual Conditions

Employment contracts or compensation plans often specify conditions under which commissions are earned. For example:

• Some contracts state that commissions are payable only after the company receives payment from the client.
• Others might require the employee to be actively employed at the time the commission becomes payable.

These terms must align with state laws. Unreasonable or ambiguous conditions may not hold up in court.

Recovering Advances

Employers may attempt to recover commission advances if the sale falls through or the client fails to pay. While this practice is generally legal, it must be explicitly outlined in the employment agreement. Without clear terms, the employer cannot deduct advances from an employee’s final paycheck.

State-Specific Protections

Labor laws governing commissions vary by state. Here’s a closer look at some prominent jurisdictions:

Oregon

• Commissions are classified as wages.
• Earned wages must be paid immediately upon termination.
• Employers cannot retroactively alter commission agreements to withhold payments.

Pennsylvania

• The Pennsylvania Wage Payment and Collection Law protects unpaid commissions.
• Employers must pay all owed wages by the next regular payday.
• Written notice is required in case of disputes, and employees can seek damages for delayed payments.

California

• Commissions are considered wages once earned.
• Employers must provide a written commission agreement, clearly outlining how commissions are calculated and paid.
• Violations may lead to penalties, including interest on unpaid wages and attorney fees.

New York

• Commissions are protected under wage theft laws.
• Employers must honor the terms of written agreements, and earned commissions must be paid promptly upon resignation or termination.

What to Do If Your Employer Withholds Commissions

If you suspect your employer is unlawfully withholding commissions, follow these steps:

Review Your Employment Agreement

Check your offer letter, compensation plan, and any written agreements for terms related to commission payments. Note any conditions or clauses that could affect your eligibility to receive commissions after leaving.

Gather Documentation

Collect evidence to support your claim, such as:

• Employment contracts.
• Offer letters.
• Employee handbooks.
• Communications (emails, memos) regarding commission agreements and disputes.

Calculate the Amount Owed

Use the terms outlined in your agreement to determine the total unpaid commissions. Include all sales, services, or tasks that meet the conditions for earning commissions.

Communicate with Your Employer

Reach out to your employer, preferably in writing, to request payment. Be clear and professional, stating:

• The amount you believe is owed.
• The reasons for your claim.
• A deadline for resolution.

Seek Legal Advice

If your employer refuses to pay, consult an employment attorney. They can:

• Evaluate your claim.
• Advise on your legal options.
• Represent you in negotiations or court proceedings.

Legal Remedies for Unpaid Commissions

File a Wage Complaint

Many states allow employees to file complaints with their labor department or wage board. This process is often faster and less expensive than filing a lawsuit.

Pursue a Lawsuit

If administrative remedies fail, you may file a lawsuit against your employer. Potential outcomes include:

• Recovery of unpaid commissions.
• Statutory penalties.
• Reimbursement for attorney fees and court costs.

Seek Penalties for Wage Theft

In states with strong wage theft laws, employers may face additional penalties for failing to pay earned commissions.

Preventing Commission Disputes

Before accepting a commission-based role, ensure you fully understand the terms of your compensation plan. Request written documentation and ask questions about any ambiguous clauses.

Maintain detailed records of your sales, commission agreements, and communications with your employer. These records can serve as vital evidence in case of a dispute.

Familiarize yourself with the labor laws in your state to better understand your rights and protections regarding commission payments.

Conclusion

Commissions are a critical component of compensation for many employees, and the law generally protects workers from having their earned commissions unlawfully withheld. While employers may impose reasonable conditions on commission payments, they cannot retroactively change terms or withhold wages without cause. If you’re facing issues with unpaid commissions after quitting your job, it’s essential to act quickly, gather evidence, and seek legal counsel if necessary. Knowing your rights and taking proactive steps can help you recover the compensation you’ve earned.