Three ways courts decide when commissions are “earned”

By Adam Glazer, Esq. and Adam Maxwell, Esq., from SFBBG

“When is a commission earned?” Perhaps the most deceptively simple question in the manufacturers’ sales representative world, the subject is among the most litigated issue under state Sales Representative Acts.

The reason is straightforward: once a commission is deemed “earned” or “due,” many sales rep statutes trigger short payment deadlines, fee-shifting and potentially double, treble or quadruple damages. What appears at first blush to be an arcane accounting question is often the trigger for statutory liability.

It may be surprising to learn that Sales Representative Acts do not define when commissions are earned, but instead primarily mandate payment once commissions are due and impose penalties on manufacturers for noncompliance. As a result, many disputes focus not only on whether a commission is owed after termination, but also when it became due. A disagreement over timing and entitlement to commissions can transform a routine contract dispute into a significant statutory damages case.

Across the nation, courts tend to analyze the question of when a commission is earned using a familiar framework:

1. The plain language of the contract;

2. The parties’ course of dealing; and

3. Industry custom and practice.

The problem and the genesis of many disputes is that these three sources do not always align and often contradict one another. Courts are then asked to decide which one governs, and the results prove highly fact-dependent and generally unpredictable.

The starting point: The contract controls — until it doesn’t

Courts will begin with the written agreement (if there is one). Where a contract clearly defines when commissions are earned and payable, that language typically gets enforced.

Contractual provisions tying commissions to specific events such as shipment of goods, receipt of payment or acceptance of orders are routinely applied as written. However, this “contract controls” principle has limits.

Contracts can fail in three recurring ways:

• Ambiguity. When a contract provision is subject to more than one reasonable interpretation, it is legally ambiguous. Sometimes, ambiguity arises when a contract uses undefined terms like “procured,” “serviced” or “booked” orders, and other times it arises because of inconsistent tense or improper punctuation (classic example: “Let’s eat Grandma” versus “Let’s eat, Grandma”). Punctuation can not only save lives — it can also save commission dollars.

• Silence. Some agreements will explicitly state when a commission becomes payable, but do not define when commissions are earned. Others fail to address post-termination commissions, particularly for design-in and pipeline deals, where sales cycles can span months or years. Such contractual silence gives rise to legal arguments over how best to fill the “gap” in the parties’ agreement.

• Internal inconsistencies. Courts can also struggle to reconcile unfamiliar and seemingly inconsistent provisions in a rep contract (e.g., “earned upon booking” but “payable only if paid”) that produce ambiguity. Careful draftsmanship can help avoid unnecessary judicial interpretation.

When any of these issues arise, courts may deem a contract ambiguous and move beyond its plain language, turning to extrinsic evidence to guide their interpretations.

Reality check: Parties’ course of dealing can override the paper

As discussed in our breakout session at the 2026 ERA Conference in Austin, when a contract is ambiguous, courts frequently examine how the parties actually conducted business.

All too often the contract says one thing, but the parties did another. It is not unusual to see this in relationships involving longterm accounts, where informal adjustments get made over time.

In ongoing commercial relationships, the parties’ performance history is often the best evidence of what they understood the contract to mean. Courts can look beyond ambiguous written agreements to the parties’ conduct in determining entitlement to commissions, and will strongly consider consistent conduct. Evidence that the principal benefited from the rep’s performance under that pattern is one key factor that gets evaluated.

This can prove especially relevant in the electronics industry, where sales reps are often paid on reorders and long-term relationships naturally evolve beyond the original contract terms. The stronger and more consistently a course of dealing is found that varies from the contract terms, the more likely a court is to recognize an implied modification to the contract and reject a strict textual defense.

This underscores an important but often overlooked point: if the parties intend to modify their working relationship, those changes should be documented. At minimum, unilateral deviations by a principal should be promptly addressed. Despite the power imbalance, unfavorable deviations by a principal should be met with some form of protest by the rep, and repeated deviations (e.g. commission rate reductions) should generate repeated protests or “reminders” of a protest. Otherwise, a consistent course of dealing such as a reduced rate faces the risk of becoming the new operative agreement in the eyes of a court.

Industry custom fills the gaps

When both the contract and course of dealing leave uncertainty, courts may look to customary industry practice or “usage of trade.” This principle can get applied in commission disputes where the relevant terms in the agreement are absent or ambiguous, and where the parties’ conduct is not consistent enough to establish agreed-upon terms.

Industry norms often include payment of commissions on booked orders, even if shipped later, payment of commissions on reorders originating from the rep’s efforts, and continued commissions post-termination for accounts the rep was responsible for originating, also known as the “procuring cause doctrine.” This common law doctrine can operate as a default rule in many jurisdictions.

Industry custom can be established through expert testimony, or otherwise showing evidence of comparable relationships and trade association standards. Though industry custom normally does not override clear contract language, it can tip the scale where ambiguity exists.

Practical guidance for ERA members

Both manufacturers and sales reps can reduce the risk of disputes by focusing on consistency between what the contract says and how the relationship actually operates. That begins with drafting agreements that do more than outline general expectations: a sales rep agreement should clearly define when commissions are earned and what payments are due after termination.

Clear contracts are a strong starting point, but they may not prove enough as relationships develop and grow. Whenever practical, the parties should attempt to contemporaneously document changes (or objections to changes) to the contract, and preserve any communications that reflect changes, accommodations or informal understandings between the parties. These details may seem routine, but they frequently serve as decisive evidence in determining when a commission was truly earned.

Manufacturers and reps alike benefit from the discipline of aligning on expectations, documentation and conduct. When the contract, the course of dealing and the parties’ understanding all point in the same direction, disputes over when commissions are earned become far less likely, and far easier to resolve if they do arise.

Clarity requires consistency

Rarely does a single source determine when commissions are earned. Instead, answering that question can require consideration of contract language, course of dealing and industry custom. In the end, consistency across contract and conduct is what leads courts to determine when the commission was truly earned, the question at the heart of so many commission disputes.