Commission Paid On Gross Profit

[gerard]

I live and work in Houston, TX and was recently let go from a company where the majority of my earning came from commissions.  When we would sell a product we were supposed to get paid 20% of the gross profit.  Say it cost the company $20,000.00 to bring in the product, get it ready, and then ship locally to the customer this type of product would normally sell for around %23,000.  Therefore the gross profit being $3,000.00 I would get 20% of the GP.  One problem was that I was never shown what the companies cost was!  As a commission salesperson how am I supposed to accurately figure my paycheck if the company is hiding the cost of their product which is directly based on my earnings?  This being the case could they skew the cost of their product and cut me out of what I am supposed to be making?  There is only one reason I can see why a company would want to hide the cost of their product from the salesperson...

Thank You for your consideration!

ANSWER: Bob:

You ask a very good question!  If your commissions were based on gross profit then it would be very difficult to determine whether you're being paid correctly without knowing the underlying numbers.  I am assuming you asked for this information and the employer refused.  

While Texas law does not directly require the employer to disclose the information used in calculating commissions, you do have a legal right to be compensated in accordance with the terms of your employment agreement, whether oral or written.  The best and most careful employers always have written policies or agreements covering how they pay their employees, especially commission sales employees.  You didn't mention whether your former employer had such a policy or entered into a written compensation agreement with you, but if so, then the provisions of the policy or agreement are critical to deciding whether you may have a legal claim for unpaid commissions.  Similarly, if you had only an oral agreement or understanding, you still have a right to enforce its terms.  If the employer refuses to disclose the information you need to decide if you've been properly paid, you should contact a Houston area employment attorney and/or get in touch with the nearest office of the Texas Workforce Commission, which can investigate a claim on your behalf.  See this page from the TWC website:http://www.twc.state.tx.us/ui/lablaw/wcproc.html

If you don't know an attorney, you can get referrals through the local Bar Association referral service.  The Houston area has a very good service jointly sponsored by ten local area bar associations:http://hlrs.org/

I hope this helps, and wish you the best in resolving this issue with your former employer

---------- FOLLOW-UP ----------

Thank you so much for your answer and the information you provided I will explore those options.  I did have a written contract about pay compensation but one thing you mentioned sparked a memory.  You said that even if it were a verbal contract that I would still have the right to claim for unpaid compensation.  As I was being let go my sales manager specifically told me that I would be paid for two units that I had sold to a customer the previous week.  I did not have a signed quote or a check from the customer but rather a verbal(in principal) order.  My sales manager told me he was going to "take care of me," whether the company would pay me or he would pay me the commission out of his own pocket.  I thought this was very generous and thanked him for his courtesy.  He said that I worked the deal and that I deserved to get paid.  Is this a verbal contract like you mentioned in my previous question or are these just empty promises that will never be resolved?  Thank you again for your input and I look forward to your response.

[CampbeIl]

Hello again, Bob.  Sorry for my delay in providing this answer, I was in a corporate training class part of this week and they kept us very busy even into the evenings.

The statement your sales manager made is, strictly speaking, probably not a contract, because it is essentially a unilateral promise.  A contract requires what we lawyers call "consideration", which means each side must give or promise something before an enforceable contract is created or "formed."  Your original agreement with the employer as to compensation would be a binding agreement because you performed work in exchange for the employer's promise to pay you in a specified manner and amount.  However, based on your description, it doesn't appear you made any promise or otherwise "gave something" in exchange for the promise the manager made, so there probably is no consideration to form a binding contract.(The answer here would be different if, say, you orally promised not to bring a claim against the employer related to your being let go, in exchange for the sales manager's promise to pay you the commission for that last transaction)

However, this analysis focuses solely on the parting statement by the sales manager.  While it may not be a contractual promise standing alone, it could potentially bind the employer in relation to the original compensation agreement.  For example, if the original agreement would not have allowed you to be paid for that last deal because you did not have a signed quote or a check, then the sales manager's statement at the time you were terminated could be viewed as a modification of the original contract, if the sales manager had the authority to make such a modification OR if, by the course of dealing between you and the manager during your employment you had reason to believe he had such authority.