Faring better than the contract provides: The law can prove a rep’s best friend

By Adam Glazer, Esq., SFBBG

Mike Abuhamdeh didn’t exactly pull down big money as a sales rep, but he was determined to get fairly paid.

Nearly four years after he entered into a sales associate compensation plan with Carol House Furniture, Inc., a regional player in the furniture business in the St. Louis area, Abuhamdeh exercised his right to terminate the agreement. He let Carol House know he expected to get commissioned on products delivered to and accepted by his customers during the months following his termination.

This was a bold move. The contract language provided that “Sales associate will be paid (after leaving Carol House) for all delivered business thru the last day worked.” It did not enable post-termination commissions.

Accordingly, Carol House initially refused, citing the parties’ agreement. But perhaps because the amounts were relatively insignificant, it later relented and agreed to pay post-termination commissions for products delivered and accepted during the January- June time period. The highest monthly commission amount during these six months was $3,103.04, and commissions in June, the sixth and final month, totaled only $53.38.

Based on the “small” sixth month payment, Carol House believed no additional sales made by Abuhamdeh would get delivered to customers, and sent him no additional commissions. Abuhamdeh responded by filing suit in the Circuit Court of St. Louis County for breach of contract and violating the Missouri sales rep statute.

Missouri’s rep statute requires commissions that become due after termination to be paid within 30 days of becoming due, and includes a mandatory penalty for the failure to timely pay such commissions.

The trial court

Getting sued by Abuhamdeh led Carol House to reexamine its books. Suddenly, Abuhamdeh received an offer to pay an additional $1,498.01, representing another three months of commissions for the July-September period – even though the books also showed October commissions were due for an additional $92.61. Abuhamdeh rejected Carol House’s belated offer and no payment was tendered.

Instead, Carol House argued at trial that it owed no post-termination commissions based on the clear contract language limiting commissions “for all Delivered business thru the last day worked.”

The trial judge, however, found that this contract term conflicted with the Missouri sales rep statute, which states that payment is due to reps for goods ordered prior to the end of the contract, but delivered and accepted after the end of the contract. The statute includes language rendering void any contractual provision purporting to waive any of its protections.

As a result, Abuhamdeh recovered more than his contract with Carol House permitted when he was awarded $1,590.62 in unpaid commissions. The contract language limiting commissions up to his termination date was void and unenforceable.

But the trial court denied Abuhamdeh the penalty payment he sought under the rep statute for Carol House paying late. The judge ruled that Carol House complied with that statute by offering to pay him the $1,498.01 in commissions for products delivered after his termination. Somehow, the court found that the rep statute’s penalty provision, intended to incentivize principals to pay on a timely basis, was “not implicated” because Carol House paid the applicable commissions within 30 days.

Both parties appealed.

The appeal

Abuhamdeh argued to the Missouri Court of Appeals that the trial court erred by failing to impose the mandatory penalty under the rep statute. Carol House contended the trial court erred by focusing on the statutory provisions rather than the parties’ agreement.

The appellate court began with the unambiguous language of that statute: “Any and all commissions which become due after the date of such termination shall be paid within thirty days of becoming due.” The rep statute goes on to say that a principal who fails to timely pay the rep the commissions earned shall be subject to a mandatory penalty.

The court then quickly recognized that the contract language preferred by Carol House “blatantly conflicts” with the statute. The rep contract “clearly purports to waive the protections afforded to a sales representative” to ensure the collection of commissions on products delivered and accepted after a termination. Thus, the appellate court agreed the provision was void and upheld the award in Abuhamdeh’s favor.

A different result followed when the appellate court considered the trial court’s failure to impose the statute’s penalty for Carol House’s failure to timely pay Abuhamdeh’s commissions. The timeliness determination hinged on the contract’s specific language. And the agreement plainly stated that Abuhamdeh’s commissions were due on the second Friday of the month following the delivered business.

This provision was deemed “not reasonably open to a different construction,” and must therefore be enforced as written. Under Missouri’s rep statute, each month’s commissions must get paid within 30 days of the contractual due dates. Yet, Carol House neglected to timely pay the July-October commissions following Abuhamdeh’s termination because the “small” June check led it to believe nothing more was due.

As the appellate court noted, “it was Carol House that was in possession of the delivery reports.” Those reports showed the products sold by Abuhamdeh and the commissions owed, together with the due dates. “Hence, it was Carol House who failed to confirm whether additional products sold by Abuhamdeh were delivered after June.”

The court recognized Carol House did make an offer to pay, though it tendered no payment after Abuhamdeh rejected the offer. This was not enough. “Carol House’s obligation to pay Abuhamdeh’s commissions cannot be discharged by merely offering to pay a disputed amount.” And the court noted that the amount Carol House offered did not include the October commission of $92.61.

The disposition

Ultimately, the appellate court delivered a full victory to Abuhamdeh. Carol House had not paid commissions for July-October so it readily found the commissions were not paid on a timely basis as the Missouri rep statute required. This meant Abuhamdeh was entitled to not only his actual damages, but the statutory penalty as well. The trial court’s contrary determination was overruled.

Although both sides may well have entered into the rep contract expecting commissions would be paid only “thru the last day worked,” the law sometimes protects sales reps despite themselves. Mike Abuhamdeh is an example of a rep who properly took advantage of a favorable legal opportunity.