Court Revives Salesman’s Commission Claim

By Jeffrey Rhodes March 2, 2021
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a tractor at work

​The 8th U.S. Circuit Court of Appeals revived a salesman's commission claim against his former employer for commissions on rent-to-own tractor arrangements based on unclear plan language.

The plaintiff was hired in 2013 by Fairchild Equipment Inc. to sell tractors and other industrial equipment. Under Fairchild's 2013 pay program, he earned a base salary of $50,000 and a commission of 30 percent on the gross profits from most new equipment sales.

The plan excluded from commissions sales for JCB equipment, which the plaintiff was not authorized to sell on his own. For those sales, his commission was initially set at 5 percent to 10 percent of gross profits, depending on his level of involvement in the sale, but it rose to 30 percent after he completed a training program in mid-2016.

Early in 2017, the plaintiff made a deal worth more than $2 million to sell a large number of JCB Fastrac tractors to Birds Eye Foods. At about the same time, Fairchild and the plaintiff agreed to a 2017 pay program changing the plaintiff's commission structure for the sales. It stated that the plaintiff's commission for the sales to Birds Eye Foods would be:

  • 25 percent of gross profit money booked in 2017, with the unbooked remainder to be re-examined annually.
  • 25 percent commission to be paid on booked gross profit in subsequent years until all the gross profit for the original deal is booked.

An e-mail explained to the plaintiff that the gross profits on the deal would eventually be $250,114, but only $93,611 would be booked in June 2017, meaning the plaintiff would receive only a commission of $23,403 shortly, with the rest payable later.

Part of the Birds Eye Foods deal included a tractor rental arrangement with an option for Birds Eye Foods to later buy the equipment. The relevant pay-program language stated that Fairchild did not pay commissions on rental purchase options until the customer purchased the equipment. Both the 2013 and 2017 pay programs stated that the parties intended the commission programs to last for as long as the plaintiff remained an employee.

Shortly after the parties agreed to the 2017 pay program, the plaintiff abruptly quit his job and demanded payment of commissions on all his gross profits, not just those booked in 2017. Although Fairchild had deposited the booked commissions in the plaintiff's account, Fairchild refused to pay the unbooked commissions at that time.

The plaintiff filed a lawsuit against Fairchild, claiming that the company failed to pay him the commissions he was owed in violation of his contract and the Minnesota Payment of Wages Act. Fairchild removed the case to federal district court, which dismissed the plaintiff's case at summary judgment.

On appeal, the 8th Circuit agreed with the district court that the plaintiff could not force Fairchild to pay all the commissions—even on unbooked gross profits—immediately after the sale. The appeals court also rejected the plaintiff's arguments that only the 2013 pay program should apply and that the plaintiff was the procuring cause of all the sales as of the time of the Birds Eye Deal.

While the 8th Circuit rejected these arguments, it did recognize the complexity surrounding the plaintiff's entitlement to commissions on rent-to-own tractor sales. The only applicable contract language suggested that commissions intended to compensate the plaintiff while he was employed, and that rent-to-own sales commissions only became due once the renter elected to purchase the tractors. This left the contract ambiguous as to whether the plaintiff earned a commission on rent-to-own purchases after his departure, which a jury would have to decide at trial.

As a result, the 8th Circuit confirmed the dismissal of all the plaintiff's claims other than his claim for commissions on rent-to-own sales, which the court sent back to the district court for a jury trial.

Auge v. Fairchild Equipment Inc., 8th Cir., No. 19-2578 (Dec. 16, 2020).

Professional Pointer: Employers should take great care in drafting commission contracts and should seek to cover every possible sales arrangement. Failure to clearly state what commission is due in every circumstance may result in extensive post-employment litigation.

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.

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