Do You Really Want to Keep Paying Commissions to the Salesperson You Fired?

Seyfarth synopsis: Baylor Miraca Genetics Laboratories, LLC (“BMGL”) is in the genetic test business. BMGL sells its tests to its “channel partners,” who in return test specimens ordered by physicians. Brandon Perthuis became BMGL’s Vice President of Sales and Marketing in early 2015. The two-page employment agreement drafted by BMGL provided Perthuis with a base salary and commission payments. The commission provision in the employment agreement simply stated “[y]our commission will be 3.5% of your net sales,”–nothing more and failed to define “net sales” or place any other condition on the commission payment obligations.

In 2015, Perthuis landed a five-year, minimum-purchase contract with BMGL’s most prominent client. BMGL subsequently paid Perthuis on all sales that resulted from the minimum purchase contract. After the client satisfied its minimum purchase requirement under the contract, BMGL directed Perthuis to negotiate a contract amendment which would substantially increase the client’s minimum purchase requirement. In January 2017, Perthuis was successful in negotiating the contract amendment, making it the largest such contract in BMGL’s history. However on January 23, 2017, the day before the contract amendment was executed, BMGL fired Perthius.

BMGL refused to pay Perthius commissions on any sales that were finalized after his termination, including sales that flowed from the amended contract. In fact, BMGL revised its entire commission and compensation plan for its junior sales team, which expressly stated that commission fees would only “be made to employees if employed at the end of the commission period.” Perthuis sued BMGL for breach of contract, seeking payment of the unpaid commissions resulting from the contract amendment.

At trial, the court gave an instruction to the jury on the “procuring-cause doctrine.” The procuring cause doctrine, articulated by the Texas Supreme Court in Goodwin v. Gunther, is a default rule which applies “only when a valid agreement to pay a commission does not address questions like how a commission is realized or whether the right to a commission extends to sales closed after the brokerage relationship ends.” 109 Tex. 56, 58, 185 SW 295 (1916), on reh’g, 109 Tex. 56, 195 SW 848 (1917). The function of the procuring-cause doctrine is to credit a salesman or agent for a commission-generating sale produced through the salesman’s efforts. Under the doctrine, the salesman’s entitlement to a commission vests on having procured the sale, not on the actual involvement in the sales execution or continued employment through the final consumption of the sale.

The jury found that Perthuis was in fact the procuring cause of at least some of BMGL’s sales flowing from the contract amendment. On appeal, however, the judgment entered by the trial court based on the jury verdict was reversed based on the appellate court’s conclusion that the procuring-cause doctrine did not apply in this case and that Perthuis’s employment agreement unambiguously entitled him only to commissions for sales procured during his term of employment.

Wrong, said the Texas Supreme Court. In Perthius v. Baylor Miraca Genetics Laboratories, LLC645 SW3d 228 (Tex. 2022), the Court held that because the employment agreement between BMGL and Perthius was silent as to any exceptions to the duty to pay sales commissions that Perthius procured, the procuring-cause doctrine did apply and that the “ at will” declaration in Perthius’s employment contract did not displace the procuring-cause doctrine.

What is the take away here? The means to think the application of the procuring cause doctrine is simple. Employment agreements with employees receiving any part of their compensation through commission payments should be explicit with respect to the payment of commission post-resignation or termination. Had BMGL simply included a term conditioning commission payments on continued employment, as the Court explained, the default procuring-cause doctrine would not have applied. And, it is too late to make that change post-termination. So, employers should consider reviewing the agreements they currently have in place with commissioned employees based on the Texas Supreme Court’s recent decision now.

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