Reading Commission Contracts: Your Unpaid Commissions Can Be Trebled Under the Massachusetts Wage Act

The Massachusetts Wage Act (“Wage Act” or “Act”) requires all earned wages to be paid within six days of the end of pay period. M.G.L. c. 149, s. 148. The Wage Act applies to commission payments as long as the commissions are “definitely determinable” and “due and payable” (i.e. as long as the payment in question is a commission, not a bonus (link). Id.  If your employer fails to timely pay your earned commissions, you could be entitled to triple damages, attorneys’ fees, and interest on the late payment. See DeSantis v. Commonwealth Energy System, 68 Mass. Ct. 759 (2007).

Commissions are “definitely determined” when they are arithmetically determinable – i.e., you can apply a formula to determine their value. See Okerman v. VA Software Corp., 69 Mass. App. Ct. 771 (2007). For example, when an employee is due 3 percent of the total of the sales he makes each month.

But how do you know if your commission is “due and payable”? In other words, how do you know if you have completed all the required conditions on your right to receive the payment? We turn to contract law for the answer. Commission claims are essentially contract claims with liquidated (trebled) damages attached to them. That means determining whether your commission is due under the Wage Act requires the application of contract law principles.

Interpreting Contract Terms

Courts interpret contract terms with the goal of identifying the intention of the parties at the time they entered into the contract. The court is not supposed to consider the subjective intent of the parties, but rather engage in an objective analysis – what would a reasonable person, having all the background knowledge the parties had at the time of contract formation, have understood the terms of the contract to be?

The court will first turn to the plain language of the contract itself. If the contract or provisions in question are unambiguous, the court will only look to the text of the contract to interpret the parties’ intent. This is known as the “four corners rule”.  A contract or provision is considered ambiguous if it reasonably susceptible to more than on interpretation. A provision is not ambiguous simply because the parties disagree as to its construction or urge alternative interpretations.

The court will generally interpret any ambiguous terms or provisions against the party who wrote or requested the inclusion of those terms. This is known as the principle of “contra prementum” or “interpretation against the draftsman”. In commission contracts, this is usually the employer. However, some contracts include clauses that eliminate this principle. And some courts will only apply contra prementum as last resort if other evidence fails to resolve the ambiguity.

The court will aim to interpret the contact in a commercially reasonable manner and not adopt an interpretation that produces an absurd result. The court will also attempt to analyze and give effect to the contract as a whole. If there conflicting terms in the contract, it will attempt to interpret those terms in a way that harmonizes them with the full contract.

Extrinsic (Outside) Evidence

If the terms of the contract are unclear or ambiguous, the court may allow the parties to introduce extrinsic (outside) evidence to help demonstrate the intention of the parties at the time of the contract formation. Extrinsic evidence could include: (1) witness testimony describing what they thought the contract term to mean; (2) emails or other correspondence discussing the contract terms; and/or (3) the past or current conduct of the parties (for example, how was your employer paying out your commissions before this dispute?). Extrinsic evidence is supposed to help clarify the meaning of any ambiguous words or terms in the contract. Surrounding circumstances or the relevant background of the contract formation might also be examined by the court. Note, extrinsic evidence is used to determine the intent of the parties at the time the contract was formed and cannot but used to later create an ambiguity in wording of the contract.

Integration Clauses

An integration clause is a provision in a contract that specifies that the written contract is the final agreement between the parties and overrides any other oral or written statement. This clause is intended to prevent parties from claiming that the contract doesn’t reflect their actual agreement. A typical integration clause will say something like “This Agreement is the entire agreement between the parties in connection with (the subject matter of this Agreement), and supersedes all prior and contemporaneous discussions and understandings.” Integration clauses are common in employment and commission agreements.

Except in cases of fraud or misrepresentation, the Parol Evidence Rule generally prohibits the court from considering extrinsic evidence if the contract contains an integration clause. Hallmark Inst. of Photography, Inc. v. CollegeBound Network, LLC, 518 F.Supp.2d 328, 331 (D.Mass.2007) (the parole evidence rule in Massachusetts “prohibits the introduction of extrinsic evidence to alter the terms of an integrated and complete written contract”); Starr v. Fordham, 420 Mass. 178, 648 N.E.2d 1261, 1268 (1995) (“[a]n integration clause in a contract does not insulate automatically a party from liability where he induced another person to enter into a contract by misrepresentation.”). If your commission contract contains an integration clause, it’s important that the language in the contract contains the full and complete agreement between you and your employer, including any verbal agreements. It’s also important to get any later modifications to agreement in writing. While the court might consider evidence of a later oral modification to an agreement, “the proponent of the oral modification must present evidence of sufficient force to overcome the presumption that the integrated and complete agreement . . . expresses the intent of the parties.” Hoffman v. Thras.io Inc., No. CV 20-12224-PBS, 2021 WL 1858688, at *7 (D. Mass. May 10, 2021) (internal citations omitted) (emphasis added).

Unenforceable Terms

Just like in any contact claim, some terms of your commission contract might unenforceable (i.e. a “special contract” under the Wage Act). See Electronic Data Systems Corp. v. Attorney General, 454 Mass. 63, 70 (2009) (holding that employers are precluded from “drafting contracts that place[] compensation outside [the] bounds” of the Wage Act). For example, a clause that requires you to be employed on the date your commissions are paid out, even if you completed all the work required to earn the commission before leaving the company, could be unlawful under the Act. See McAleer v. Prudential Ins. Co. of Am., 928 F. Supp. 2d 280, 289 (D. Mass. 2013) (holding that unless the contract specifies otherwise, “courts generally consider that the employee earns the commission and it becomes due and payable when the employee closes the sale, even if there is a delay in actual payment on the sale”) Your commissions are also likely still due to you if your employer unlawfully terminates your employment before your commissions are paid. See Parker v. EnernNOC, 484 Mass. 128, 134 n. 10 (2020) (“the [Wage] Act does not allow an employer to set a condition under which it agrees to pay wages to an employee and then make it impossible for the employee to satisfy the condition in an effort to evade its responsibility to pay those wages”).

Be sure to also review your commission contract for other common provisions that could impact your Wage Act claims—such as clauses requiring arbitration and choice of law provisions.

Employment contracts can be complicated, but if you believe your employer might owe you earned commissions, we offer free analysis of your potential claims. You could be entitled to triple damages and interest on the amount owed, plus your attorneys’ fees and costs for pursuing your earned wages. Please feel free to contact us at (617) 338-9400.

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Unpaid Sales Commissions in Massachusetts: When Suing for Unpaid Commissions is Plausible

Man receiving sales commission. Boston Employment and Wage Law Attorney

The Massachusetts Wage Act, which provides plaintiffs with triple damages and attorneys’ fees for successful unpaid wage claims, also applies to commissions. M.G.L. c. 149, s. 148 states:

This section shall apply, so far as apt, to the payment of commissions when the amount of such commissions, less allowable or authorized deductions, has been definitely determined and has become due and payable to such employee.

In other words, if your commission can be calculated and is due under the terms of your employment contract, your employer must pay it to you or he or she is breaking the law and is subject to stiff penalties. In our practice, we find that unpaid commissions are one of the most commonly violated parts of the Wage Act.

Why Do Employers Fail to Pay Commissions in These Cases?

In some instances, employees do too well and significantly exceed their sales targets. Other times, employers fail to pay owed commissions because of cash flow problems. Disputes may also arise as to whether the commission is actually owed because the employer claims that the employee did not fulfill a requirement or left the company before the commission became due and payable. Some employers in these cases go so far as to manipulate their employee’s commission accounts to avoid payment.

One strategy that some employers use in an attempt to avoid mandatory payment of commissions (and, in the litigation context, triple damages for non-payment), is to characterize commissions as discretionary. The idea is that if the commission is entirely at the discretion of the employer, it is not “due and payable” until the employer exercises that discretion and decides to pay, much like a fully discretionary bonus. For this strategy to work, however, the courts have made clear that the contract governing the commissions must be unequivocal that the commissions are in fact entirely discretionary.

A federal decision from the District of Massachusetts addressed this issue directly. The court determined that the Wage Act applies even to commissions that the employer characterizes as “discretionary.” In McAleer v. Prudential Insurance Company of America, the plaintiff-employee sued for commissions owed under a plan that granted his employer, Prudential Insurance, significant discretion in making factual determinations and calculations, and evaluating eligibility of his sales for commissions. The court ruled that the terms of the plan did not really give Prudential a blank check in determining whether it would pay commissions or not. To interpret the contract in that manner, the court determined, would be to “render the plan meaningless.” The hefty remedies provided for in the Wage Act therefore applied in the case.

Whether commissions in a given case are “due and payable,” and whether the Wage Act applies, therefore comes down to the contract: Do the terms of the employment contract make the commissions entirely discretionary? Or, does the employee in fact earn his commission upon the happening of some event or other factor defined in the contract? Often, especially in the case of smaller employers, a commission agreement is hastily and inexpertly drafted. Among other things, such a contract may not be “integrated,” meaning that evidence of practices and understandings outside the four corners of the contract can be used to determine what the contract really means. Even if a contract is “integrated,” there can be many ambiguous provisions and disputes surrounding them. Some common important provisions are:

  • a clause requiring arbitration of a dispute;
  • choice of law provisions, which may seek to avoid the application of Massachusetts law;
  • windfall provisions or caps on commission;
  • definitions of the trigger event that gives an employee a right to a commission (for example, a signed purchase order, or income actually received by the company);
  • determination of the date that the commission becomes payable;
  • what happens to commissions in the event that the employee leaves the company;
  • type of sales that are included in the employee’s commission base.

There can be many points that require analysis in a commission case, and employment contracts can be complicated.

When is Suing for Unpaid Commissions Plausible?

  • Breach of contract by employer
  • If you met performance requirements
  • Unlawful practices by the employer
  • Failure by the employer to pay earned wages

Interested in Suing for Unpaid Commissions? Get in Touch with an Attorney

If you believe that your employer owes you earned commissions, however, the matter is always worth investigating because the possibility of triple damages is a huge incentive. In all but the most complicated situations, we will spend our time for free to analyze potential unpaid commission cases, so feel free to contact us at 617-338-9400 if you think you may have a case.

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Commissions and Profit Sharing

The United States Court of Appeals for the First Circuit recently decided the Wage Act commissions case, Ellicott v. American Capital Energy, Inc., No. 17-1421 (1st Cir. 2018).  This case is interesting for a few reasons, but I’ll address two here. First, the losing defendants in this case argued that the salesperson’s commission plan, which was based on the profitability of sales he made, fell outside the Wage Act’s protections. Such a distinction has been made in some cases between commissions and “profit-sharing” plans, with the first being subject to Wage Act coverage and the latter outside its coverage and protections. Two cases making that distinction are Suominen v. Goodman Indus. Equities Management, 78 Mass.App.Ct. 723 (2011) and Feygina v. Hallmark Health System, Inc., 31 Mass.L.Rptr. 279 (2013). However, the First Circuit focused on the key elements of the Wage Act related to commissions, the “due and payable” and “definitely determined” requirements, and found that the commissions in this case met both. This case will be key for employees facing the employer defense that a commission will lose Wage Act coverage simply for having a connection to profits. I view this as an important win for employees with unpaid commission cases.

Next, the First Circuit examines the important doctrine of equitable tolling. This doctrine allows an employee’s claims to survive despite being outside the statute of limitations if an employer makes statements that it knew or should have known would lead the employee to delay filing suit and, in reliance on those statements, the employee delays. Here, the employer held meetings with the employee about the commissions and told him that money was tight but that he would be paid if he was patient. The jury found that the defendants “made representations [they] knew or should have known would induce [Ellicott] to put off bringing suit and [he] did in fact delay in reliance on the representations.” Without this finding, Ellicott’s lawsuit would have been too late, but the doctrine of equitable tolling of the statute of limitations saved his claims.

Just a reminder that the statute of limitations for Wage Act claims is three years.

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Commission Pay and Overtime Rights

Are you an employee who is paid commissions only, or a combination of salary plus commissions? You might think you are not entitled to overtime pay. However, unless you are exempt from the overtime law (such as traveling salespersons who do not regularly report to an office, bona fide executives and professionals, and others), you must receive a premium overtime wage for all hours you work over forty in a week.

The Massachusetts Overtime Law

The Massachusetts Overtime Law, M.G.L. c. 151, s. 1A, provides that employees must be paid one and one-half times their “regular rate” of pay for all hours worked in excess of forty in a workweek. An employee’s “regular rate” of pay includes all forms of compensation except for commissions, draw pay (recoverable or non-recoverable), bonuses, and “other incentive pay based on sales or production.” Once you have added together all the compensation an employee receives in a workweek (with those noted exceptions), you divide that total by the number of hours the employee worked to get the employee’s “regular rate.”

Commissions-Only Employees

What if you’re only paid commissions for your work? Because commissions are excluded from calculating the regular rate, as mentioned above, the regular rate is zero, right? The overtime regulations do not permit that result. Instead, the regulations prohibit the regular rate from falling below the minimum wage (currently $9.00 per hour). 454 CMR 27.03(1). So, the “regular rate” for a commissions-only employee is $9.00 per hour.

Then, we multiply that number by 1.5 and get an “overtime rate” of $13.50 per hour. In other words, for each hour a commissions-only employee works in excess of forty in a workweek, that employee must receive $13.50.

Employees Who Get Paid Salary Plus Commission

If an employee is paid both a salary and commissions, the calculation changes. While commissions are still excluded from the regular rate calculation, salary payments are included. So, the regular rate for an employee earning a salary would be his total weekly salary divided by the number of hours he worked. For example, if an employee earns a $50,000 salary per year ($961.54 weekly) and works 50 hours in a given week, his or her regular rate is $19.23 per hour. This employee’s overtime rate would be $28.85 ($19.23 x 1.5). This means that he must receive $28.85 for every hour worked in excess of forty in a workweek.

What if the commissions an employee earns exceed the amount of overtime wages owed?

Up until recently, this was an open question under state law. However, the Massachusetts Department of Labor Standards recently updated the overtime regulations to make clear that an employer cannot credit earned commissions toward meeting its overtime obligations. The new regulations provide:

Whether a nonexempt employee is paid on an hourly, piece work, salary, or any other basis, such payments shall not serve to compensate the employee for any portion of the overtime rate for hours worked over 40 in a work week …

Simply put, an employer cannot credit the commissions (or other forms of payment) an employee receives toward that employee’s earned overtime wages. Instead, the employer must separately pay that employee premium overtime wages for all hours worked in excess of forty in a workweek.

If you are an employee who earns commissions only (or salary and commissions), works over forty hours per week, and doesn’t receive premium overtime wages, call us at the number above or just email us at [email protected] for a free consultation.

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Learn more about commission pay

Company Discretion and Employee Commissions

Oftentimes, neatly tucked away in a commission plan is some language that allows an employer complete discretion in administering, changing, interpreting, or cancelling the plan. On this point, an interesting case was just decided in the United States District Court for District of Massachusetts, McAleer v. Prudential Insurance Company of America, C.A. No. 12-10839-DPW, (D.Mass Feb. 28, 203), which addressed the validity of such provisions.

The long and the short of it was that the Court did not side with the employer, stating:

Prudential argues that because the plan affords it complete discretion for interpretation and payment calculation — including discretion to determine whether McAleer was eligible to receive commissions as an active employee in good standing — McAleer’s commissions cannot be arithmetically determinable. This argument fails.

Discretion prevents commissions from being definitely determined if the employer is under no obligation to award them. See Weems v. Citigroup Inc., 900 N.E.2d 89, 94 (Mass. 2009) (holding that the “operative fact” in finding discretionary bonuses not to be definitely determined is “not [that] they are labeled bonuses, but [that] the employers are, apparently, under no obligation to award them”). While Prudential exercises substantial discretion in the administration of the commission plan, the commissions are not themselves discretionary. The plan does not afford Prudential carte blanche to withhold or modify commission payments for any reason. It simply affords discretion over factual determinations, calculations, and eligibility. To interpret the discretion under the plan as broadly as Prudential would have it would render the plan meaningless.

The gravamen here is that an employee must be watchful for whether an employer is actually promising to pay them commissions if they do certain things. Unfortunately, this often involves reading legal jargon when one is excited to start a new job. I don’t know how realistic that is except for high-level sales executives that have the incentive and experience to get independent counsel or to just read the provisions of their plan very, very carefully. Most don’t do this.

McAleer actually stands for something rather simple: discretion to interpret or administer a plan does not equal being able to simply strip an employee of her earned commission. That is a different type of discretion. However, total discretion can exist, such as in a case when compensation or bonus is truly a matter of manager discretion by virtue of the plan terms, regardless of objection metrics. In such cases, the Weems holding will come into play to potentially give an employer the right to not pay a disfavored employee.

If you think you’re owed a commission or bonus in Massachusetts, it makes sense to drop us a line. If you think you are owed money and want to file suit if you have a case, we will usually review a commission plan for free to see what options you have.

 

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Wage Forfeiture and Valid Set-Offs in Massachusetts

Generally, any contractual provision that requires an employee to forfeit earned wages is a “special contract” prohibited by the Massachusetts Wage Act, M.G.L. c. 149, § 148. As the Attorney General has put it, “an employer may not enter into an agreement with an employee under which the employee forfeits earned wages.” See An Advisory from the Attorney General’s Fair Labor Division on Vacation Policies, 99/1. The concept of wage forfeiture often, but not always, arises along with the concept of set-off. As the Wage Act allows a “valid set-off” to be deducted from wages, when an employer has a potential wage set-off, it will usually assert it as a defense in a wage case. This usually doesn’t work. As an example, we once had a school system defend the docking of teachers’ pay due to their inability to get students to return all of their textbooks. This was not a valid set-off. Notably, the Massachusetts Supreme Judicial Court recently held in Camara v. Attorney General, 458 Mass. 756 (2011) that a set-off for damage caused to the property by garbage collectors was not permissible under the Wage Act. The employer in that case had created a procedure in which it would be the sole judge of the fault and damages caused by a garbage collector in, say, knocking over a customer’s mailbox. As the court put it:

An arrangement whereby [the employer] serves as the sole arbiter, making a unilateral assessment of liability as well as amount of damages with no role for an independent decision maker, much less a court, and, apparently, not even an opportunity for an employee to challenge the result within the company, does not amount to “a clear and established debt owed to the employer by the employee.” The option afforded [the employer]’s employees to choose “voluntarily” to accept either wage deductions or discipline offers them only unpalatable choices. This procedure does not come close to providing an employee the protections granted a defendant in a formal negligence action.

Id. at 763-4.

So, the circumstances in which an employer can involuntarily deduct wages are narrow. In general, it is only permissible when there is “clear and established” debt to the employer; when the matter is subject to potential dispute–as in the garbage case–the debt is not clear and established. However, there is another situation in which compensation can be taken from an employee: when that compensation isn’t really earned in the first place or, put another way, when the vesting in the right to compensation is subject to contingencies that the employee must fulfill in order to earn the wage in the first place. That’s what the SJC held in another case related to restricted stock grants.

In Weems v. Citigroup Inc., 453 Mass. 147 (2009), the basic story was that Citigroup either granted restricted stock as a bonus or employees could buy it via a payroll deduction. Restricted stock is a type of stock that you don’t actually vest to full ownership unless you stay employed. Typically, restricted stock vests at intervals over several years, and the employee forfeits any unvested restricted stock when their employment ends. In Weems the SJC held that this was permissible.

First of all, Weems was, at least in part, a results-driven opinion due to the peculiar nature of restricted stock. Rolling vesting schedules are a common and well-established way of rewarding employees for staying in their jobs. The IRS has special rules that make this type of compensation feasible. No tax is due on grants of restricted stock (unless the employee makes a special election). Tax liability only accrues when the stock vests. However, the IRS requires that there be a “substantial risk of forfeiture” of the stock for this tax treatment to be allowed. (Here’s a PDF discussing the taxation of restricted stock). If the SJC in Weems had held that the restricted stock was already earned for past services when granted instead of when it vested, any forfeiture of it would have violated the Wage Act. However, this would have also removed any substantial risk of forfeiture in all restricted stock in Massachusetts. Besides creating a major change in the long-standing ability of employers to use restricted stock to incentivize employees, it would have rendered all unvested restricted stock in Massachusetts immediately taxable as ordinary income as of the date of the decision. The SJC made several references to the tax issue, and this was a radical consequence they were clearly trying to avoid.

We shall further assume for purposes of answering the certified question that [the plan] is designed to comply with the provisions of Federal tax law that require some element of forfeiture for tax deferred plans.

Id. at 155.

Still, the SJC had to find an intellectually defensible basis to find that the unvested restricted stock was subject to forfeiture. As I mentioned above, there were two kinds of restricted stock at issue: the kind that was given as a bonus and the kind that was purchased by employees via payroll deductions. In Weems, the parties stipulated to the fact that the bonus stock was given in an entirely discretionary manner.

The operative fact here is that bonus awards under these programs are discretionary, not because they are labeled bonuses, but because the employers are, apparently, under no obligation to award them.

Id. at 153-4.
This meant that the plaintiffs did not have Wage Act rights in the restricted stock before it was granted. However, this wasn’t really the point of the case: No one really contends that a purely discretionary bonus is subject to Wage Act coverage before it is decided upon by the employer.

The real question in the case was whether the bonus stock could be taken back before it vested. As the court put it:

[A]n employee who received such an award would receive the full benefit of the stock (i.e., the restriction would be lifted and the stock would vest fully) only if the employee remained with the company for the defined period after the award. The only thing they “earned” as a result of their bonus was stock that had limited value to them until it vested.

Id. at 154.
So the bottom line is that the court allowed the forfeiture of the restricted stock because it was a special type of compensation earned only by continued employment. This is one interpretation. One might also argue that Weems created a legal fiction to achieve a desired result, i.e. that the bonus restricted stock had no real value and, therefore, could be forfeited without a violation of the Wage Act.

The bottom line is that employers will try to use Weems to excuse the forfeiture of bonuses and commissions after they are earned when a condition subsequent to their payment exists under employer policies. I don’t think Weems requires this result. The line between a bonus and a commission is also often hazy, and the status of bonuses under the Wage Act isn’t exactly clear-cut. However, it is my opinion that despite Weems, once a commission (or “bonus”) is calculable and due and payable, a condition subsequent to its payment will be held to be a special contract in contravention of the Wage Act.

(The court had an easier time quickly disposing of the second type of stock, that kind that was purchased by employees. The court also held that M.G.L. c. 154, s. 8 specifically removed employee stock purchase plans from the protections of the Wage Act.)

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Are Bonuses Wages in Massachusetts?

As I wrote previously, the Massachusetts Appeals Court recently decided the case of Suominen v. Goodman Industrial Equities, 78 Mass. App. Ct. 723 (2011). In Suominen, the plaintiff was a former construction manager of a small real estate development firm and was promised a share of “overall profits generated by the development efforts.” Suominen argued that this was a commission under the Massachusetts Wage Act, M.G.L. c. 149, s. 148. The panel upheld the trial court’s ruling against Suominen on his Wage Act claim. In the view of the panel, Suominen’s incentive compensation was different than a typical commission, which it defined as a “percentage of the money taken in on sales, given as pay to a salesclerk or agent, usually in addition to salary or wages.” The panel called the compensation at issue a “profit-sharing arrangement.” Since many types of compensation could be cast as profit-sharing arrangements, what will this decision mean in future Wage Act cases seeking unpaid bonuses? Should bonuses be considered wages under the Act?

First of all, there are two ways to read the Wage Act, both of which are logically valid but completely different. On the one hand, one can choose to take the reference to “wages” in the Act to be a general way of referring to the compensation of an employee. In this view, the universe of covered wages is vast and the specific types of special compensation (vacation, holiday, and commissions) are listed only as part of a non-inclusive list. It’s reasonable that the legislature may have listed some specific types of pay in order to head off controversies without providing an exhaustive list of what would be considered “wages.” In fact, this is the way that the Superior Court in Juergens v. MicroGroup recently read the Act when it ruled that severance pay–mentioned nowhere in the Act–was covered as wages. And it seems to be the majority view emerging from the case law (at least in the state courts).

The second way to read the Act is to consider “wages” to mean only the salary or hourly pay of employees, and the reference to vacation, holiday, and commissions as limited exemptions to the general rule. What is the better reading of the statute? The text is here if you want to give it a try.

There are a few things worth saying about Suominen. First, courts are sometimes reluctant to allow Wage Act coverage for very highly paid employees. Wage Act coverage enables them to sue for three times their compensation, which, in the view of some courts, is more of a windfall than an appropriate penalty. Often these scenarios can feel more like business deals gone awry than traditional employee-employer relationships. For example, Suominen was seeking more than $1 million in damages from a share of the “promote” of several real estate development deals. What is a “promote”? It goes right to the heart of why Suominen lost.

A promote is a term of art in the real estate development world. It’s a manner of compensating promoters of development projects beyond their return on equity (if they invested cash in the deal) and for their personal services in managing the project. The promote is meant to reward a general partner for his or her entrepreneurial role in a project. A general partner must often bring a Promethean level of effort and resourcefulness to a project to make it succeed, and it makes sense for everybody, including the limited partners, to incentivize this. Moreover, a general partner will often have real skin in the game, like a personal guarantee of project debt or even a mortgage on his home to get the loan for the deal. (By the way, this is a big cause of bankruptcies when a business project fails.)

In this case, Suominen was an employee of the general partner (Goodman), the promoter of several real estate development deals. Goodman, as general partner, had negotiated the right to a promote that was 25 percent of the equity upside after invested equity was paid back and received a 15 percent annualized return on its investment. Since Suominen was a key part of the Goodman enterprise–as construction manager he had a big role in the projects’ success or failure–Goodman agreed to pay him about 23 percent of the promote. It is worth noting that Suominen was making a base salary of $225,000 a year during the latter part of his employment with Goodman.

So, why does this matter? The bottom line is that courts do not think it is fair to give an employee with a high salary and a stake in overall business profits Wage Act coverage for his incentive pay. Thus, Suominen’s Wage Act claims failed. Courts would rather leave employees like Suominen to their breach of contract and promissory estoppel claims, so a little judicial interpretation/activism takes place. However, what would happen if a low-level employee was owed only $1,400 as part of a bonus compensation plan and brought suit? Defense counsel would certainly try to use Suominen to win the case. After all, any bonus plan can ultimately be viewed as a profit-sharing plan.

It is very likely, however, that despite Suominen, a court would rule in favor of the hypothetical employee whose income was tied to regular sales or performance of the company, rather than to a company-level transaction. Bonuses that are tied to sales and related metrics–and not to enterprise-level transactions–are indisputably commissions. The “promote” in Suominen was realized on the sale of a project asset or the refinancing of project-level debt to extract equity appreciation–an entity-level transaction. Apart from scale and the power position of the actors, this is a critical theoretical difference between Suominen and the regular employee entitled to a commission or bonus.

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Bonuses and Commissions under the Wage Act

This post was updated on September 2, 2025

Whether a certain type of pay is covered by the Massachusetts Weekly Payment of Wages Act (“Wage Act”) has meaningful consequences. If a category of unpaid compensation is covered by the Wage Act, an employee is entitled to three times the amount of unpaid wages, attorneys’ fees, and costs. Over the last decade, there has been controversy over whether commissions and bonuses are covered under the Wage Act, and Massachusetts courts have issued several rulings both in favor of and against employees on this topic.

In Okerman v. VA Software Corp., 69 Mass. App. Ct. 771 (2007), the panel held that commissions were covered by the Wage Act as long as they were “definitely determined” and “due and payable,” as set forth in the statute’s plain language. The panel further tightened the noose on employers who failed to pay employees’ wages, limiting their ability to be clever with commission calculations. The panel made it clear that the “definitely determined” requirement was satisfied as long as commissions were “arithmetically determinable.”

Notwithstanding this decision, commissions will continue to be a fruitful area of controversy due to the many scenarios that can arise in the context. One such controversy arose when a plaintiff was retaliatorily terminated before being compensated for an earned commission. The SJC held that the plaintiff’s commission was covered as wages under the Wage Act in Parker v. EnerNOC, Inc., 484 Mass. 128 (2020). The SJC reasoned, “although the plaintiff’s commission never became due and payable pursuant to the policy during her employment, it is, nevertheless, a ‘lost wage’ under the act subject to trebling.” This case also clarified that “[w]ages lost as a result of retaliation are trebled under the Wage Act.” Other specific situations dealing with commissions will inevitably continue to arise. Some of these potential cases may hinge on the employer’s intent and surrounding circumstances – and a former employee might have a claim under the implied covenant of good faith and fair dealing. However, such common law claims often lack a critical component: the fee-shifting and multiple damages provisions that make Wage Act claims far more compelling.

As of 2025, Okerman remains good law and has been cited multiple times in the years following its publication, both by the SJC and the 1st Circuit Court of Appeals. See, Lipsitt v. Plaud, 466 Mass. 240 (2013); Trindade v. Grove Servs., 91 F.4th 486 (2024).

In the aftermath of the Okerman decision, some employers began reclassifying commissions as bonuses in an effort to avoid the requirements of the Massachusetts Wage Act. In 2011, the Massachusetts Superior Court held in Juergens v. MicroGroup that the Wage Act even covered severance pay. While this interpretation was controversial, it aligned with the broader reading of “wages” adopted in the Supreme Judicial Court’s decision in Wiedmann v. Bradford Group, Inc., 444 Mass. 698 (2000).

However, following Juergens, other lower Massachusetts courts have issued rulings finding that severance pay is not covered by the Wage Act. In Platt v. Traber, 85 Mass. App. Ct. 1114 (2014), the panel held the plaintiff’s severance agreement did not fall under the Wage Act. The Middlesex County Superior Court agreed, echoing prior cases that “[a] plain reading of the statute reveals that the quoted statutory terms refer solely to commissions,” finding that the Wage Act does not cover severance pay when the court dismissed the complaint in Farrell v. Farrell, 29 Mass. L. Rep. 557 (2012).

In the following years, Massachusetts courts hav5348620

e surprisingly shown a willingness to find that bonuses are not covered under the Wage Act. While commissions are explicitly included in the Wage Act coverage, bonus pay is not. As bonus pay is based on definable metrics, it shares much in common with commission compensation. In fact, bonuses are usually tied to sales, often of a business unit or entire company. When this is the case, a bonus is just as arithmetically determinable as a commission, and it constitutes part of the employee’s total expected pay. It would make little sense to treat mathematically calculable incentive pay differently based on the name given to it. However, a Massachusetts Appeals Court in 2011 decided a Wage Act case that has been used by employers to claim that bonus pay is excluded from the Act.

In the case of Suominen v. Goodman Industrial Equities, 78 Mass. App. Ct. 723 (2011), the plaintiff was a former construction manager of a small real estate development entity and was promised a share of “overall profits generated by the development efforts.” The plaintiff argued that this compensation was a commission under the Wage Act. The panel disagreed, stating that it was, in their view, different than a typical sales commission because it was a “profit-sharing arrangement.” Since most bonuses can be cast as profit-sharing arrangements (though varying widely in scale), this decision leaves many questions. It’s important to note, however, that Suominen involved compensation based on an entity-level transaction. Sales commissions and performance bonuses are normally based on the business’ sales and not a sale of the business itself.

I expected defendants would use the Suominen case to avoid Wage Act liability for unpaid bonuses, which has proven to be true. Massachusetts courts have characterized the decision as ruling that bonuses are not wages under the Wage Act. While the courts have continued to find that profit-sharing schemes are not applicable to the Wage Act, Suominen appears to create a minor loophole for commissions to be repackaged as bonuses.

After having more opportunities to address bonuses, the Appeals Court has shown a willingness to find that bonuses, even those with questionable terms, are not covered by the Wage Act. In 2019, the Massachusetts Appeals Court found that an unfulfilled stock agreement was considered a bonus and not wages despite the agreement being tied to performance. O’Connor v. Kadrmas, 96 Mass. App. Ct. 273 (2019). The court found that these were “profit distributions to shareholders;” because of the “highly contingent” and “discretionary” nature, the court determined the stock agreement was not wages. Similarly in 2021, a summary decision by the Appeals Court found that a bonus only granted if the employee met certain working requirements was not wages under the Wage Act. Alfieri v. Merrimack Pharms., 99 Mass. App. Ct. 1119 (2021). Alfieri characterized O’Connor with the finding that a compensation “can be neither discretionary or contingent” to be deemed wages under the Wage Act. This context appears to blur the lines between commissions and bonuses.

While Massachusetts courts have continued to affirm that commissions are deemed wages, the court has signaled that there is more to say on the matter. The SJC said in 2020 that “[in the earlier rule on commissions], we did not announce a categorical rule that commissions that do not meet those conditions are considered not to be wages under the act; instead, the clause provides that the failure to pay commissions when they are definitely determined and due and payable is one way to violate the act.” Parker (2020). In this way, the SJC has made room for further clarification regarding what a wage is under the Wage Act. Hopefully, this indicates the SJC will be willing to expand the definition of wages in years to come.

Timing issues will continue to complicate bonus and commission cases. I expect to see more litigation on the issue of when an employee earns incentive pay.

Hey, They are Stealing my Commissions!

You’re looking at it the right way. If you have earned a commission and someone takes it from you, it’s the same as stealing your wallet. I used a keyword in the last sentence, though. The law imposes a stiff price on employers who steal earned commissions, but it often requires contract interpretation, i.e. analyzing the fine print of a commission agreements, and predicting how any ambiguities in contract terms will be resolved by a court, to understand when a commission is earned. If commissions have been earned, then the right to the money vests that price –the Massachusetts Wage Act, which makes commissions recoverable as a wage and applies the employee-friendly treble damage and fee shifting provisions for commissions just like any wage–nothing stops an employer from The key issue is when a commission is earned and when Thanks to the Massachusetts legislature

Due and Payable, Massachusetts Commission Law

Several cases in recent years have helped to define the contours of when a commission becomes earned, and the property of the employee for purposes of the the Massachusetts Wage Act. That’s important, of course, because the