Commission Pay Laws in Oregon

by Joel Christiansen

Commission pay is largely a function of contract law. Employee commissions – as opposed to independent contractor commissions – are most often treated as a “wage” with all associated employee rights. This means that employees may have the right to recover penalties, attorney fees, costs, and other disbursements. Employee wage claims can provide significant leverage over employers who fail to pay commissions.

Commission Contracts

If two parties have a written commission plan, the terms of that plan are very important in determining how to resolve a related dispute. However, workers do not necessarily need a written agreement to have a valid claim for commission pay. If an employer’s promise to pay a specific amount of commission-based compensation motivates an employee to perform work for the employer, the employee may have have claim to commissions as soon as they are vested.

Oregon’s at-will employment doctrine allows employers to prospectively set and change commission pay with proper notice to the affected employee(s). However, an employer’s unilateral change in terms of employment will only apply prospectively, not retroactively. Mail-Well Envelope Co. v. Saley, 262 Or 143 (1972); Brett v. City of Eugene, 130 Or App 53 (1994); Albrant v. Sterling Furniture Co., 85 Or App 272 (1987). A change in terms will not extinguish a right that is earned or vested prior to the modification. Olson v. F & D Publ’g Co., Inc.,160 Or App 582 (1999); Fish v. Trans-Box Sys., Inc., 140 Or App 255 (1996). An employer therefore cannot retroactively revoke benefits that have already vested in an employee at the time of the modification.

Common commission pay issues include:

  • When and how are commissions earned?
  • Exactly how are commissions calculated?
  • When are commissions payable?
  • What happens if employment ends after the work is complete but before the money comes in?
  • Does an employee have a right to review payments or accounting records to verify commission pay calculations?
  • Can an employee file a lawsuit to recover unpaid commission or must the dispute go to mediation, arbitration, or some other private dispute resolution process?

Did the parties clearly agree to specific relevant terms, in writing or otherwise? If so, that is usually a good starting point for evaluating the issues. However, disputes are common where the parties disagree about their original agreement.

Evaluating ambiguities, performance problems, and other commission pay issues often implicates Oregon contract law – offer, acceptance, consideration, conditions, breach, remedies, etc. Covering the details of Oregon contract law is beyond the scope of this article. However, it is important to understand that actual terms of any commission pay agreement will be fundamentally important to resolving disputes.

Commission Pay as a “Wage” Under Oregon Law

In addition to contractual rights, Oregon state law provides employees other important rights related to commission pay. Commission pay is a “wage” under Oregon’s wage and hour laws. Hekker v. Sabre Const. Co., 265 Or 552 (1973). This invokes several Oregon statutes and regulations that give employees rights and remedies against employers who fail to properly pay commissions.

Oregon is one of many states that classify commission pay as wages. See e.g., Community Telecommunications Corp. v. Loughran, 651 A.2d 373 (Me., 1994)(citing Oregon as one of several jurisdictions where commissions are wages for the purpose of state wage and hour laws; also citing Hofer v. Polly Little Realtors, Inc., 543 P.2d 114, 116 (Co. 1975); Licocci v. Cardinal Assocs., 492 N.E.2d 48, 56 (Ind. 1986); Brown v. Navarre Chevrolet, Inc., 610 So.2d 165, 169 (La. 1992)).

The following are some important laws and regulations related to commission pay in Oregon.

Recordkeeping Requirements for Commission Employees. Oregon law imposes a number of recordkeeping requirements on covered employers.

  • ORS 652.610: This law requires employers to provide itemized statements of withholdings and deductions. It also prohibits employers from wrongfully withholding, diverting, or deducting from employee wages, including commissions.
  • ORS 652.750: This law provides employees the right to access a copy of their personnel file.
  • ORS 653.045: OAR 839-020-0080(4) explains, “[w]ith respect to each employee in a bona fide executive, administrative, or professional capacity […] or in outside sales […], employers must maintain and preserve records containing all the information and data required by subsections (1)(a) through (e) of this rule and, in addition, the basis on which wages are paid in sufficient detail to permit calculation for each pay period of the employee’s total remuneration for employment including fringe benefits and perquisites.” Subsection (1)(j) requires employers to keep records of  “the dates, amounts, and nature of the items which make up the total additions” to an employee’s pay.
  • Special Recordkeeping Requirements: In some special circumstances, BOLI regulations require employers to keep additional records. These regulations include: OAR 839-017-0004 et seq. (private employment agency records); OAR 839-014-0035 et seq. (farm worker camps); OAR 839-015-0004 et seq. (farm and forest labor contractors); OAR 839-021-0170 et seq. (employment of minors)

Overtime/Minimum Wages. Many commission employees are exempt from Oregon overtime and minimum wage regulations. Exempt employees may include outside salespeople (ORS 653.020(6)) and retail or service employees paid on a commission basis (OAR 839-020-0125(2)(d)). However, if an employer cannot prove an employee’s exempt status, the employee may be entitled to recover overtime, minimum wage, and associated penalties, liquidated damages, and other relief.

Final Pay Requirements. Oregon law requires employers to promptly pay all wages upon termination of employment.

  • ORS 652.140: This law requires employers to pay final wages within 1-5 business days, depending on how employment ended.
  • ORS 646A.097: This law requires timely payment of commissions in certain sales representative/principal transactions.

Penalty Wages. Employers that fail to properly pay wages may be subject to liability for penalty wages.

  • ORS 652.150: This law allows some employees to recover penalty wages (up to 240 times the employee’s regular hourly rate) for willful violations of certain Oregon wage and hour laws.
  • ORS 652.150’s “willful” requirement: For the purpose of penalty wage assessments, the Oregon Supreme Court has defined willful conduct as follows:

In civil cases, the word “wilful,” as ordinarily used in courts of law, does not necessarily imply anything blamable, or any malice or wrong toward the other party, or perverseness or moral delinquency, but merely that the thing done or omitted to be done was done or omitted intentionally. It amounts to nothing more than this: That the person knows what he is doing, intends to do what he is doing, and is a free agent. (Sabin v. Willamette-Western Corp., 276 Or 1083 (1976)).

  • An employer’s failure to pay plaintiff commissions is not willful where the employer has a bona fide belief that no commissions were due under the parties’ employment agreement. Young v. State of Oregon, 340 Or 401 (2006)(citing Hekker v. Sabre Construction Co., 265 Or. 552, 561 (1973)).“Hekker, then, implies that an employer lacks knowledge, and therefore does not act willfully, if it has a good faith belief that one of the elements necessary to trigger the obligation to pay wages owed at termination is lacking.” Wilson v. Smurfit Newsprint Corp., 197 Or App 648 (2005).
  • ORS 652.150’s “written notice of nonpayment” requirement: Where plaintiffs instituted action to collect their commissions on the date the commissions were due, no penalty was assessable under ORS 652.150 due to plaintiff’s failure to provide notice. Reed v. Curry-Kropp-Cates, Inc., 61 Or App 520 (1983)

Prejudgment Interest. Burke v. American Network, Inc., 95 Or App 274 (1989) held that prejudgment interest accrues on unpaid commissions as of date of termination.

Attorneys’ Fees. ORS 652.200 allows employees to seek payment for attorneys’ fees in certain cases that proceed to a judgment. Wyss v. Inskeep, 73 Or App 661, n. 11 (1985)(“[t]he Supreme Court has held that an employe is entitled to attorney fees under ORS 652.200(2) in an action to recover unpaid commissions.”)

Implied Covenant of Good Faith and Fair Dealing. Oregon law recognizes that parties to a contract must act in a way that does not prevent performance or otherwise undermine the contract. Sheets v. Knight, 308 Or 220, 233 (1989). This duty generally applies to commission pay agreements. Wasserburger v. American Scientific Chemical, Inc., 267 Or 77 (1973); See also, New Jersey Model Jury Charge 2.15, which cites a commission agreement as an example where “an at-will employee may have a viable breach of implied covenant claim.”

Commissions for Employees Ages 65+. ORS Chapter 124 may provide additional remedies for 65+ year old employees who are not paid employee commission pay. Under that law, certain employers may be liable for treble damages, costs, attorneys’ fees. See ORS 124.110.

Resolving Commission Pay Disputes in Oregon

Parties frequently resolve commission privately. In Erickson v. American Golf Corp., 194 Or App 672 (2004), the Oregon Court of Appeals acknowledged:

In the context of an employment contract, if the prerequisites for an accord and satisfaction are met, a substitute agreement may be used to resolve good faith disputes between an employer and employee over the amount of commissions, overtime, salary, or other compensation. See, e.g., Massey et al v. Ore.-Wash. Plywood Co., 223 Or 139 (1960) (vacation pay); Lenchitsky v. H.J. Sandberg Co., 217 Or 483, 488-90 (1959) (commissions on sales); Shelley v. Portland Tug & Barge Co., 158 Or 377 (1938) (overtime and subsistence); Fogdall v. Lewis and Clark, 38 Or App  541 (1979) (annual salary).

Commission disputes that cannot be resolved informally may proceed to court, arbitration, or some other forum for resolving disputes. Depending on the parties’ agreement, some situations may require: (1) application of a specific state’s substantive or procedural law (choice of law clauses)(But see ORS 15.320(3)(“the law of Oregon applies to […] contract of employment for services to be rendered primarily in Oregon by a resident of Oregon.”)); (2) confidential, private arbitration in lieu of a jury trial (arbitration clauses); (3) mediation or other forms of dispute resolution as a prerequisite to litigation/arbitration (alternative dispute resolution clauses); (4) specific geographic location for legal proceedings (venue selection clauses); (5) allocation of costs and attorneys’ fees among the parties (cost and fee-shifting clauses); (6) adherence to time limitations and other procedural restrictions.

Oregon courts have addressed a few other commission-specific legal issues in the following cases, including:

  • Hendrickson v. Xerox Corp., 751 F.Supp. 175 (D. Or., 1990): Employee’s claim for attorneys’ fees in commission pay dispute counted toward jurisdictional “amount in controversy”;
  • Gillman v. Emel, 747 P.2d 390, 89 Or App 153 (1987): Discussing legal versus equitable theories of recovery in commission pay claims.
  • Reed v. Curry-Kropp-Cates, Inc., 61 Or App 520 (1983): Allowing offset for employee breach of common law duties to employer.