The law says that disputes over how much a salesperson makes will be resolved in favor of the employee if a company fails to provide a written contract.
The change in law, which took effect last month, is the result of an increase in labor disputes, says Ari Karen, a partner in law firm Venable.
“You’ve got lots of litigation in the courts over people who work on commission,” Karen says. “Under this law, if you are an employer and you don’t have an agreement, you lose.”
Marie Murray, a spokeswoman for the state’s Department of Labor, says the division of labor standards, which arbitrates disputes over pay and commission, asked the office of Gov. Eliot Spitzer to draft a change in the law.
“A lot of the time the employee says one thing and the employer says another thing,” Murray says. “So [the labor standards division] said, ‘Enough is enough: Let’s make it easier for everyone involved.’ ”
As revised, the law says the contract should be signed by both employer and employee and be kept on file with the employer for at least three years. The contract should, according to the law, “include a description of how wages, salary, drawing account, commission and all other monies earned and payable shall be calculated.”
“In the absence of an agreement—written—or in the absence of certain terms, the employee has the prerogative of dictating certain terms,” Karen says.
Many companies don’t have written agreements, Karen says. “They just have something verbally.”
The new law will make it easier to enforce other labor laws, Karen says, and may be part of an effort by the Spitzer administration to step up enforcement efforts against employers that illegally misclassify workers as independent contractors.
A study by Cornell University says the state is being cheated out of $175 million in unemployment insurance taxes each year. With contracts on file detailing the terms of a person’s employment, state or federal regulators will more easily be able to audit a company.
Other laws will also be more enforceable, such as the Fair Labor Standards Act and its provision requiring that companies pay time and a half to workers putting in more than 40 hours a week, Karen says.
While very large employers already take care to have contracts with salespeople, many large and medium-size companies do not, says Ken Stein, a partner in the New York City office of law firm Ford & Harrison. Stein believes the law, though onerous for employers, will force them to specify how they will compensate their salespeople. Less ambiguity at the outset will reduce conflicts later on, he says.
Attorneys say employers should make sure to specify the conditions that need to be met before a salesperson can earn a commission.
“You don’t want people who are commission salespeople to think they’re being cheated,” he says. “It really doesn’t do much for morale."