Unpaid Commission Disputes Launch Unique COVID-19 Lawsuits

As the pandemic’s barrage of extenuating circumstances has disrupted plans of all kinds, breaches of contract have become common disputes. But among the allegations of nonperformance stemming from business partnerships, events, or goods and services, a few more unusual claims have also emerged. In an unusual twist, two separate commission-based employees whose business activity actually flourished during the COVID-19 outbreak have filed lawsuits against their employers over breach of contract claims. These employees allege they earned substantial commissions during the pandemic period, however, their companies have yet to pay out these funds.

Claims Over Unpaid Commission

Two separate cases currently focus on the same question: does the alleged failure to pay commissions earned by COVID-19-related sales constitute a breach of the contract between employer and employee? In one of the cases, Patterson v. SerVaas, the plaintiff was a sales executive for a cleaning product manufacturer. The plaintiff’s employment contract included both a base salary and 24% of gross sales increases per fiscal semester—the two six-month periods from January to June and July to December. The company’s sales of its cleaning supplies unsurprisingly soared between March and June 2020. However, the complaint alleges that the company refused to count the increased sales during this period toward the plaintiff’s 24% commission on gross sales increases.

The plaintiff claims that the company explained its refusal to count these sales because they had resulted from the pandemic, not from the plaintiff’s sales acumen. Not satisfied with this explanation, the plaintiff sued for breach of contract.

In the second case of this kind, Bhaghani v. Round Table Medical Consultants, the defendants are owners of emergency room clinics. The plaintiff, a call center employee working for defendants, allegedly worked on commission, receiving $3 per patient referred to the defendants’ clinics. With the onset of the pandemic, the plaintiff’s referral metrics grew by over twentyfold—from about 2,000 a month to over 44,000 a month. The complaint alleges that this increase equates to $134,235 in referral fees for the month of July 2020 alone. However, the plaintiff claims that these fees, along with additional amounts for August and September 2020, remain unpaid and prompted his lawsuit.

COVID-19 Breach of Contract Claims

Many pandemic-related breach of contract claims arose from the fact that the pandemic shut down businesses across industries. Several airlines, for example, have recently found themselves in court over pandemic flight cancellations. Other business types may also find themselves in breach of contract lawsuits after supply chain disruptions, sickened employees, or other pandemically spurred events impacted their ability to meet their obligations under a contract.

Patterson v. SerVaas and Bhaghani v. Round Table Medical Consultants, however, stand out as these disputes hinge on an increase in business, not a disruption of it. As the pandemic drove up demand for both products like cleaning solutions and services like emergency room care, salespeople in positions like these plaintiffs’ stood to see earnings based on sales or referrals increase as well.

For businesses paying their staff on commission, however, a sudden increase in demand can disrupt financial situations. A commission arrangement designed to reward initiative may find its purpose disrupted when sales increase due to outside forces, rather than any efforts by the employees working for that commission.

What to Expect From Future Commission-Related Claims

A contract between employer and employee is effectively violated if the employer fails or refuses to pay the employee as agreed. Both wages and earned commissions are included in this arrangement. In order to clarify what the employer will owe an employee and precisely under what circumstances, many commission agreements specify how commissions will be calculated, how often they will be paid, and other details. These specifications are intended to help the parties understand the arrangement and avoid conflicts.

Once in a lifetime events like a global pandemic, however, may not be covered by a standard commission agreement. For example, the agreement may not specify that commissions may be earned only on sales that result from a salesperson’s own efforts, skill, and knowledge. Similarly, such agreements typically will not explain that referral fees are unavailable for referrals resulting from a public health crisis. As seen above, novel business developments may result in intervention by a mediator or court in order to reach an earnings resolution.