Predictability and fairness are typical pillars of employment law. Where predictability allows both employers and workers to understand and navigate the rules and regulations that are applicable to them, fairness provides a constant level of security to all parties. Recently, the Texas Supreme Court used an unpredictable procedure to reach what it calls a “rule of fairness and right.”
In a 7-2 decision by the Texas Supreme Court, a Texas healthcare company was ordered to pay over $960,000 in commissions to its former employee after determining that the procuring-cause doctrine applied to the parties’ agreement. Deemed a disruptive application of an archaic doctrine by two dissenting justices, Baylor Miraca Genetics Laboratories LLC (BMGL) was ordered to pay the amount to Brandon Perthuis, its former sales executive, resulting from an amended purchase contract negotiated by Perthuis, and then signed by BMGL the day after his termination.
Background
BMGL hired Perthuis as an at-will employee in 2015 as a Vice President of Sales and Marketing. At the outset of his role, Perthuis signed a two-page employment agreement, which provided that his employment would be at-will and that he would receive commissions of 3.5% of his net sales. At the same time, Perthuis signed a “retention agreement” which, among other things, expressly conditioned bonuses on continued employment. The employment agreement contained no such requirements for commission payments.
In 2017, Perthuis negotiated an amendment to a long-term supply contract that entitled BMGL to $42 million in revenue. Days thereafter, Perthuis was called in to a meeting where he was fired. The amendment was executed the next day, and BMGL declined to pay commissions to Perthuis from the resulting sale.
Analysis
While the Court found that the employee was eligible for post-termination commissions due to the agreement’s silence on the issue, the dissent argued there was ambiguity in Perthuis’ employment agreement concerning his eligibility for the same, emphasizing that the role of the Court should be to try and effectuate the parties’ intended meaning, not apply a rarely used doctrine “which [the] court has barely mentioned in a century.” The dissent asserted that in at-will employment situations, parties understand that their obligations to each other end with termination of employment and that the majority’s result was “a significant and ill-advised departure” from at-will employment law.
While application of the procuring-clause doctrine is infrequent in wage and commission disputes, it is even more rare in cases that do not involve real estate brokering. Regardless, the Court relied on previous applications of the doctrine from lower-court cases involving disputes over contracts involving everything from rose bushes to mules.
In order to properly apply the procuring-clause doctrine, the Court held that only three requirements must be met:
- The contractual relationship between parties must be one that promises payment of commission.
- The parties must not have done anything to displace the procuring-clause doctrine.
- The party that will benefit from the procuring-clause doctrine must be the procuring cause of the sale that will earn them commission.
The Court found it clear that the employment agreement was one that promised payment of commission and asserts that, rather than effectuating a result that neither party intended, it simply resorted to a default that applies when the agreement does not address how a commission is realized or whether the right to a commission extends to sales closed post-employment. The Court emphasized that parties certainly may condition payment of commission on continued employment, but to do so, it must be expressly stated in the contract
The function of this decision, the Court stated, is not to change the landscape of wage claim disputes, but rather simply to stop “post-hoc efforts to rewrite contracts by adding exceptions under the guise of ambiguity.” Because the procuring cause doctrine is the “default,” the Court held that parties must “opt out” of the doctrine and that the legal consequence of silence as to the issue is that the default rule remains intact.
What this means to you
The application of the procuring cause doctrine to at-will contracts has the potential to have far-reaching effects on post-employment commission disputes. Texas employers should review their commission agreements or policies to ensure there is no ambiguity or silence as to when or if commissions become due after an employee’s separation from the company. We will continue to monitor and report on further legal developments on this issue.
The authors wish to thank Robert Markus for his assistance in preparing this post. Robert is currently a Summer Associate with the firm.
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