In some industries, sales commissions can translate into a huge percentage of someone’s income. Commissions incentivize many to close deals, which drives revenue for their companies.
However, there are many different types of sales commission structures, which can lead to confusion – and legal conflicts.
Disputes tend to focus on structure, amounts and timing
The interpretation of a contract or other agreement governing commission structure – including when and how payments are made – can explode into litigation. Most of the time, the problems are rooted in miscommunication errors or a breakdown in the relationship between the two parties. Here are some common scenarios:
- Unclear or disputed contract terms: Vague or ambiguous language can lead the employer and the salesperson to radically different interpretations of their agreement. For example, a contract might not clearly define when a commission is earned – whether that’s when a sale is made, when payment is received from a client or when any return period is officially over.
- Disputes over commission percentages: These are common issues, especially if there are disagreements about how commissions are split when more than one salesperson is involved and the interpretation affects tiered payment structures or bonuses.
- Delayed payments or nonpayment: Even when the amount and structure of a commission are clear, problems can arise if the employer fails to pay the commission on time or at all. This can happen due to cash flow issues, disputes over the validity of a sale and when a salesperson leaves the company before the commission is paid but still believes they are owed it.
Sales commission claims are a significant aspect of business litigation, particularly in industries where sales performance is closely tied to compensation. If you’re in a dispute, seeking early legal guidance may be the fastest way to a workable solution.