New Jersey employees compensated on a commission basis maybe considered wage earners who are afforded the same legal protections as hourly or salaried employees under the New Jersey Wage Payment Law (the “NJWPL”). Consequently, when employers fail to pay employees the full value of commissions earned an employer may be liable for violating the NJWPL because the statute requires employers to pay the full value of wages due to their employees on regular paydays. Specifically, the NJWPL defines “wages” as:
“the direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, time, task, piece, or commission basis excluding any form of supplementary incentives and bonuses which are calculated independently of regular wages and paid in addition thereto.”
The above statutory language raises the question of how commissions differ from supplementary income such as bonuses under the NJWPL. The New Jersey District Court case of Sluka v. Landau Uniforms, Inc., 383 F. Supp.2d. 649 (D.N.J. 2005) helps to answer this question. In Sluka, Plaintiff Carl Sluka (“Sluka”) was hired by Defendant Landau Uniforms, Inc. (“Landau”), to work as a salesperson selling uniforms. According to the terms of the employment contract between Sluka and Landau, Sluka would be compensated in three ways: (1) a $60,000.00 base salary, (2) a monthly one-percent commission net commission on all net sales to his account, and (3) two year-end payments, compromised of a two-percent commission on net sales from new customers generated by Sluka as well as a two-percent commission on Sluka’s year-over-year increase in net sales. Id. at * 652. Ultimately, Landau terminated Sluka and subsequently paid him only his base salary and the one-percent net commission on sales he made in the month before his termination. Id.
Following his termination, Sluka filed a complaint against Landau alleging wrongful termination. Id. Furthermore, one count of Sluka’s complaint alleged Landau violated the NJWPL by failing to pay him his third category of compensation, the two-year end payments. Id. Both parties stipulated that the first and second category of Sluka’s compensation, his base salary, and monthly one percent commission on all net sales, constituted wages under the NJWPL. Id. However, Landau moved for summary judgment against Sluka arguing that the third category of his compensation, the two year-end payments, were not commissions but rather supplemental income because they were essentially bonuses, paid out all at once at the end of the year in addition to his base salary and monthly commission. Id. The court agreed with Landau noting how the two year-end payments were bonuses because they were used for the purpose of incentivizing employees to recruit new customers and create more business. Id.
By contrast, in Carita v. Mon Cheri Bridals, LLC, 2012 WL 2401985 * 11 (D.N.J. 2012). The Plaintiff-Employee Yolanda Carita (“Carita”) worked as a director of sales for the international sales division of Defendant-Employer Mon Cheri Bridals, LLC (“Mon Cheri”), a business primarily engaged in selling dresses for special occasions. As the director of sales, Carita was compensated with a base salary and monthly commissions based on international sales generated by the salespeople she directly managed. Id. On January 22, 2010, Carita was terminated and sued Mon Cheri, alleging amongst other issues, that Mon Cheri violated the NJWPL because they paid her the commission she earned up to December 2009, and failed to pay her the monthly commission generated by her team in January 2010. Id. The court ruled in favor of Carita holding that wages earned for the actual sale and calculated based on a percentage of the total sales are considered commissions under the NJWPL, whereas payments made to encourage employees with an incentive for attracting new business relationships, rather than for the sales themselves, are characterized as supplemental income, not commission, under the NJWPL. Id.
Similarly, In Jones v. Hesp Solar, 2021 WL 1904734 *4 (D.N.J. May 12, 2021). The court reached the same decision based on the same reasoning as in Carita. Specifically, the two Plaintiff-Employees (“Plaintiffs”), Ralph Jones (“Jones”) and Philip Pietrafeso (“Pietrafeso”) were employed by Defendant-Employer HESP Solar (“HESP”) as members of the business development department. Id. at * 3. HESP was in the business of assisting clients with installing solar energy systems and Plaintiffs were compensated with commission for sales closed through their individual efforts. Id. The Plaintiffs were promised commission upon successful installation of solar energy equipment for the customer. Id. In 2016 the Plaintiffs first project they sold was completed, but they were never paid out on any commission for the sale of this project, nor for any following project. Id. In 2019, HESP fired the Plaintiffs after they complained about not being paid the commissions they were promised. Id. Shortly thereafter, Plaintiffs filed a complaint against HESP. Id. The court ruled in favor of the Plaintiff’s distinguishing the discretionary and incentive-based payments of the third category of compensation in Sluka. Id. Unlike those payments, the commissions at issue in Jones became due when the project was completed and were calculated at an agreed upon rate regardless of whether it was a repeat customer or a new one. Id.
The key distinctions between “earned sales commissions” and “incentivized supplemental bonuses” is that supplemental incentives are not considered earned wages. Hence, if you are a recently terminated employee who expects to receive an end of year bonus for your performance before being fired, you may have no recourse under the NJWPL to recover the value of a lost bonus because it is not considered an unpaid wage.
Fortunately for employees, New Jersey courts have generally held in their favor regarding this issue because the New Jersey Supreme Court has instructed lower state courts to “approach any question regarding the scope and application of the [NJWPL] mindful of the need to further its remedial purpose.” Hargrove v. Sleepy’s, LLC., 220 N.J. 289, 303 (2015). The remedial purpose of the NJWPL is to ensure employees are paid the full value of wages earned on time. For these reasons, courts have stated “the NJWPL is remedial legislation and therefore it should be given a broad construction.” Furthermore, exceptions as to what constitutes “wages” under the statutory definition are narrowly tailored, placing the burden of proof an exception on the employer. Jones v. Hesp Solar, 2021 WL 1904734 *4 (D.N.J. May 12, 2021) (quoting Carita, * 11). In sum, it is unlawful for employers to classify an employees earned commission as “supplemental income” to avoid paying out earned commissions to employees.
At Mashel Law LLC, we are well experienced in handling New Jersey Wage Payment and Wage and Hour Law claims. If you believe your employer unlawfully withheld your wages from you, call the attorneys at Mashel Law (732) 536-6161 or fill out the contact form on this page for immediate help in assessing whether you have an actionable claim against your employer. At Mashel Law, LLC, located in Marlboro, New Jersey, we are dedicated to protecting the rights of employees.