Must an employer pay commissions to an at-will employee earned after the employee’s date of termination?  The Texas Supreme Court recently weighed in on this issue, reminding employers that written expectations and terms of employees, their positions, their salaries and/or earnings is crucial.

In Perthuis v Baylor Miraca Genetics Laboratories, the Court concluded the state’s “procuring-cause doctrine” applies to commission (or sales) payments for an employee no longer employed with employer at the time the commission is collected. In 1916, the procuring-cause doctrine was established and previously applied to seller-broker relationship in real estate disputes. It is a default rule that when agreements are silent as to the duty to pay commissions then the commission is earned when the broker “procured” the sale and thus is entitled to those commission payments regardless of when the income is earned (or obtained) from the transaction.  Specifically, a broker is entitled to a commission when a “purchaser” is produced through the broker’s efforts, ready, able and willing to buy the property upon the contracted terms, not necessarily when the transaction is executed.

In Perthuis, Baylor Miraca Genetics Laboratories, LLC (BMGL) made Brandon Perthuis (Perthuis) its Vice President of Sales and Marketing in early 2015. BMGL drafted the two-page employment agreement, which Perthuis signed without alteration. The agreement gave Perthuis an annual base salary and stated that Perthuis’s employment would be “at-will.” As to Perthuis’s commissions, it provided: “Your commission will be 3.5% of your net sales.” There was no further explanation in the agreement. The employment agreement did not, for example, define “net sales” or place any other parameters on the commission obligation. There were no definitions as to when, how much or how the commissions were paid or even accrued by the employee. The employment agreement also noted that Perthuis would be eligible for retention bonuses; it referenced a separate “retention agreement,” which Perthuis also signed the same day. The retention agreement expressly conditioned any retention bonus on Perthuis’s continued employment.

BMGL develops and analyzes genetic tests. BMGL sells its tests to “channel partners,” who return test specimens to BMGL after obtaining orders from physicians. Perthuis served BMGL by pursuing and negotiating contracts with channel partners, the most prominent of 3 which was Natera, Inc (“Natera”). Natera and BMGL entered into a contract. After a year, BMGL had Perthuis negotiate an amended contract with Natera. This amended contract greatly increased the minimum sales requirement of Natera (hence more commission allegedly owed to Perthuis). The amended contract was signed a day after Perthuis was terminated from his employment. As a result, Perthuis sued for recovery of his commissions from the sales that have been earned from Natera and BMGL’s amended contract.

Both BMGL and Perthuis argued that the provision in his employment agreement regarding the 3.5 % commissions was vague as to when the clock stops on commissions owed to Perthuis. Perthuis contended that the nature of the contractual relationship did not materially change, and that he remained the procuring cause of sales to Natera all the way up to trial. BMGL, of course, strenuously argued the opposite. The case was tried by a jury and the jury only awarded some of the commissions argued by Perthuis that he was seeking. On appeal, the Court of Appeals reversed, finding that the procuring-cause doctrine did not apply to the parties’ contract.

The Texas Supreme Court, however, held that because the employment contract promised commissions for sales, BMGL and Perthuis’s contractual relationship was the kind to which the procuring-cause doctrine applied.  It also held that BMGL and Perthuis did not displace the doctrine by the terms of their contractual agreement.  The Court noted that the procuring-cause doctrine is merely a default rule, a rule that the parties could have contracted around.

The Court’s decision underscores the importance for clarity in employment agreements with employees, in particular, on matters of compensation and commission structure and longevity, Documenting the intent of the parties in terms of wages can prevent future confusion and litigation.

If you would like to consult with an attorney on issues presented in this article and/or on employment and labor issues, the attorneys in our Austin and Dallas offices are available to answer any questions you may have. Please contact us a info@gstexlaw.com.

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