An employee can prove a wage claim based on his or her own records if the employer does not keep records of the employee’s pay and hours. Think about that for a moment. Your company’s liability for unpaid wages may rest solely on an employee’s notes, emails, text messages, diary, check stubs, bank statements or memory. If that doesn’t make you quake in your boots, perhaps this will – failure to pay wages at the time specified by Montana law can result in a penalty of up to 110% of the amount of unpaid wages owed. The significance of keeping good payroll records was driven home by the Montana Supreme Court in a recent wage case where a roofing company struggled to defend a salesman’s claim for unpaid commissions because of its poor recordkeeping practices. America’s Best Contractors, Inc. v. Singh, 2014 MT 70.
Unpaid Commissions Under Verbal Agreement Leads to Wage Claim
Salesman Jasvinder Singh was hired by America’s Best Contractors, Inc. (ABC) in 2003 to sell roofing, siding and gutter repairs in numerous states. Singh typically sold jobs for ABC from March through November and then returned to his home state where he serviced the contracts for the remainder of the year. Singh was initially paid a 10% commission, but in 2009, ABC agreed to pay Singh 12% on his sales and an additional 1% on the sales by other ABC salespersons. ABC did not have a written employment agreement with Singh. In 2010, Singh relocated to Billings to begin selling ABC’s repair services in Montana.
Singh and ABC’s President Dwane Drury, were close friends. In 2010, Singh loaned Drury $25,000 so that Drury could go on hunting trips.
Singh kept track of the money ABC paid to him by noting on the checks which ones were to repay the loans, which checks were for commissions from contracts sold in other states and which checks were for commissions for Montana contracts. ABC, on the other hand, failed to keep accurate payroll and commission records. By June 2011, Singh demanded to Drury that ABC pay him outstanding commissions and when it failed to do so, he quit. A month later, Singh filed a claim with the Montana Department of Labor and Industry (DOLI) alleging he was owed unpaid commissions of approximately $41,000 from June 2010 to June 2011.
The DOLI’s Wage and Hour Unit investigated Singh’s wage claim and determined that ABC owed Singh unpaid commissions. ABC appealed. DOLI’s Hearings Bureau held a hearing at which the Hearings Officer heard testimony from numerous witnesses, including Singh and Drury, and considered evidence presented by the parties. The Hearings Officer issued a Final Agency Decision concluding that ABC owed Singh $39,080.43 in unpaid commissions plus a penalty of 55% of the unpaid wages, which amounted to an additional $21,494.23. ABC appealed to the District Court which concluded that there was substantial evidence in the record to support the findings of the Hearings Officer. ABC then appealed to the Montana Supreme Court.
On appeal, ABC argued, among other things, that there was insufficient evidence to find that certain payments made by ABC to Singh were for collateral obligations rather than for Singh’s commissions earned in Montana. The problem was that ABC could not produce evidence to show that certain payments made to Singh were in fact commission payments.
The Supreme Court reviewed the evidence presented at the DOLI hearing and found that Drury admitted that he did not keep track of records on commissions paid and the records he did offer into evidence had all been edited by Drury after Singh had filed his wage claim. Singh, on the other hand, produced sales reports, email exchanges, text messages, checks, other memoranda and his own testimony to establish the contracts he sold in Montana, the amount of commissions owed to him on those contracts and what he was paid. He produced checks that included notations indicating whether they were for reimbursements, commissions earned in another state, commissions earned in Montana or for providing office services when Singh was in the Billings office. With no evidence but Drury’s testimony to counter Singh’s evidence, the Supreme Court affirmed the Hearings Officer’s findings that ABC owed commissions to Singh.
Good Recordkeeping of Hours and Pay is Essential
Montana employers have a duty to maintain accurate records of hours worked by employees and the amount of pay provided for those hours. Montana law also requires that employers pay employees earned wages, including commissions, within the time frames contained in the Wage Protection Act. Failure to do so can result in penalties up to 110% of the unpaid wages owed. In addition to the statutory recordkeeping obligations, employers need good payroll records in order to defend against employees’ wage claims. As ABC found out, in the absence of payroll records from the employer, DOLI Hearings Officers will consider evidence provided by the employee to substantiate the employee’s wage claim, even if that evidence is in the form of notes, emails and text messages. Spending the time and effort to set-up and maintain good payroll records is essential in managing your workforce and minimizing risks of wage claims. Review your recordkeeping practices now and shore up any deficiencies so that you don’t find yourself at the mercy of an employee’s notes.