Handling Outside Sales Commissions and Termination of Employment

Companies often use outside sales representatives to sell their products or services. These sales representatives can be employees or independent contractors. They are paid on commission, which rewards them financially based on what they sell. Working on commission can be a great way to set one’s own schedule while having financial reward tied to performance. Using outside sales representatives is a great model for businesses as well – a business can reach many clients face-to-face and create a more personalized relationship with the business’s customer base.

Problems can arise when a company and a sales representative part ways. Many employers know they must pay employees earned wages upon termination, but commissions for an outside sales representative present a more complicated question. How does a business handle commissions earned partially before termination and partially after termination? Should the business pay the representative the part of the commission earned prior to termination, and keep the rest? Failure to pay a sales representative his or her commission earned under a sales contract exposes businesses to significant liability.

In 2017, Oregon enacted a statute detailing the procedure employers must follow following termination of a sales representative. The statute applies both to outside sales representatives that qualify as employees and as independent contractors.

First, understanding who falls within the protection of the statute is important. The statute defines sales representatives as any person who:

Is compensated, in whole or in part, by commission
Does not place orders or purchase for the sales representative’s own account or for resale; and
Does not sell or take orders for the sale of products to the ultimate consumer.
Second, this law imposes requirements on businesses upon termination of the sales representative. For example, a business must pay its sales representative all commissions he or she accrued under their contract within 14 days from the effective date of termination. A business may not prorate or apportion the commission–if the sales representative earned it, the representative must be paid. Businesses should carefully examine the terms of their sales representatives’ contracts to determine when a commission is earned – as soon as the sales representative has completed all they are required to do under the contract to procure a sale, they are entitled to payment.