Commission Payments Are "Compensation" Under the Massachusetts Wage Act

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The Massachusetts Wage Act, M. G. L. c. 149, § 148, governs how and when an employee's wages must be paid and provides that an employer who fails to comply with the Wage Act may be subject to treble damages and be ordered to pay the attorneys' fees of the employee who has to turn to the courts to enforce their rights under the Wage Act. Commission payments are considered "wages" and, therefore, are governed by the Wage Act. For a commission to be "wages," the Wage Act provides that the amount of the commission must be "definitely determined" and "due and payable to [the] employee." Commission compensation has been "definitely determined" when the amount of the compensation due is "arithmetically determinable." Commission compensation is "due and payable" to the employee when "dependent contingencies have been met and it is thus owed to the employee." Practically speaking, that means that the employee (or the court considering whether an employer has violated the Wage Act by failing to pay a commission) must be able to calculate how much commission was owed to the employee and that all of the conditions that must be met for the commission to be payable must have been met.

A plaintiff in a recent First Circuit of the United States Court of Appeals decision (Ellicott v. American Capital Energy, Inc., Thomas Hunton, and Arthur Hennessey) successfully invoked the Massachusetts Wage Act to recover unpaid wages from his former employer in the form of commission payments. The plaintiff, Mr. Ellicott, was responsible for selling large-scale solar installations to commercial clients. His contract provided that ACE would pay him 40% of the profit margin of each of his sales within 30 days after the installation of each sale was completed and after ACE had been paid by the client. During his time at ACE, Mr. Ellicott oversaw nine sales of solar installations that generated approximately $37 million in gross profit for the company. When Mr. Ellicott still had not been paid his commissions, in some cases several years after the installations had been completed, he filed suit against ACE and its co-founders, seeking recoupment of the unpaid commissions. The jury found that the payments were wages, and the court awarded him damages of nearly $3 million, as well as his attorneys' fees and costs.

On appeal, ACE argued that Mr. Ellicott's compensation scheme was akin to profit sharing, rather than commission compensation as defined in the Wage Act, and that he therefore should not have been allowed to recover under that statute. The Court disagreed. In upholding the district court's decision, the First Circuit reasoned that Mr. Ellicott's commission wages were "arithmetically determinable" because his written contract had clearly provided for a mechanism by which his commissions could be calculated. It next considered whether Mr. Ellicott's wage were "due and payable" to him. Under the terms of his contract with ACE, Mr. Ellicott's commissions were to be paid to him if the project generated a profit; if the client paid ACE; and if the installation was complete. Because all three contingencies had been met in eight of Mr. Ellicott's nine sales, the First Circuit found that the commission payments were, in fact, "due and payable." Accordingly, the judgment in favor of Mr. Ellicott was affirmed.

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