Thursday, September 18, 2008

Case Update - Implied Agreement Governs When Commission Earned And Becomes Wage Under Labor Law

In Pachter v. Bernard Hodes Group, Inc., 10 N.Y.3d 609 (2008), the New York Court of Appeals (in answering two certified questions from the U.S. Court of Appeals for the Second Circuit) held previously that executives are employees for purposes of New York Labor Law Article 6, except where expressly excluded. The Court of Appeals also held that absent a governing written instrument, the time when a commission is "earned" and becomes a "wage" for purposes of Labor Law Article 6, is regulated by the parties' express or implied agreement; if no agreement exists, it is governed by the common-law rule that a commission is earned upon the employee's production of a ready, willing and able purchaser of the services. I discussed the case previously here.

In an appellate decision dated September 5, 2008, the Second Circuit, while not disturbing the substantive holdings of the New York court as to the certified questions, held that Plaintiff's cause of action for commissions earned could not be maintained because Plaintiff "knowingly acquiesced" over a period of years to the approach used by the Defendant employer when calculating her commissions. That approach consisted of reducing gross client receipts by a variety of business costs, uncollected debts, Plaintiff’s travel and entertainment expenses, and deducting one-half of the salary paid for Plaintiff’s assistant. Accordingly, Plaintiff’s “net” commission was less than it would have been otherwise, but for those deductions.

Such conduct, the Second Circuit held, "constituted, at the very least, an implied agreement between the parties. As this implied agreement does not violate section 193 [of New York's Labor Law] nor any other provision of article 6 of the Labor Law, the deductions in question did not violate that provision." The judgment of the trial court was reversed and the case remanded with instructions to dismiss the Complaint.

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