Why it pays to pay commissions to salespersons out on FMLA leave
Most employers subject to the Family Medical Leave Act (“FMLA”) are familiar with its basic legal requirements. What employers may not fully understand, however, is how to address the payment of commissions to sales employees when such employees utilize the FMLA and take an FMLA leave. Does the employer, for example, have to pay commissions to an employee out on FMLA leave when the customer, originally solicited and secured by the employee, makes a repeat purchase while the employee is on leave? This example, and similar variations, can pose challenges for employers that have large commissions-based sales forces. The FMLA, including the recently-enacted regulations, does not specifically address this thorny question.
The courts, to date, have rarely addressed the intersection of the FMLA and the payment of commissions. One federal court case attempted to define parameters for when an employee on FMLA is entitled to commissions. In Estes v. Meridian One Corp., 77 F. Supp. 2d 722 (E.D. Va. 1999), the employee, Ms. Estes, took intermittent unpaid FMLA leave after she was diagnosed with breast cancer. The employer withheld some of Ms. Estes’ sales commissions during the same period. Ms. Estes sued her employer in federal court for violations of the FMLA and won. The jury awarded her $1,297.58 in commissions she earned, but that the employer failed to pay.
After the trial, the employer asked the court to reverse the jury verdict, arguing that the FMLA does not entitle employees to commissions while on unpaid leave. The employer asserted that because the FMLA is unpaid for hourly and salaried employees, an employee should not be entitled to commissions while on leave as well.
The court rejected the employer’s arguments. Despite acknowledging that the FMLA does not precisely address payment of commissions, the court, nonetheless, upheld the jury verdict. It concluded that for two reasons Ms. Estes was entitled to her commissions denied by the employer.
First, the FMLA regulations provide that an employee on FMLA leave is entitled to the "same consideration for a production bonus as other employees on paid or unpaid leave.” 29 C.F.R. § 825.215(c)(2). Although the regulation expressly addresses “bonuses,” not “commissions,” the court interpreted the word “bonuses” broadly to also encompass “commissions.” Thus, the Court concluded that the failure to pay the commissions violated the FMLA.
Second, the statute states that an employer who violates the FMLA is liable to the employee for “wages, salary, employment benefits, or other compensation denied or lost.” 29 U.S.C. § 2617(a)(1)(A)(i)(I) (emphasis added). The court concluded that “commissions” fall within the definition of “other compensation.”
Accordingly, the court concluded that its analysis was consistent with one of the FMLA’s central tenets: to protect employees on unpaid medical leave by requiring employers to treat them the same as similarly situated employees on paid or other leave. In light of this goal, the court concluded the employer violated the FMLA when it paid commissions to two other employees on non-FMLA leave, but not Ms. Estes, who was on FMLA leave. The court’s rationale was the employer’s conduct contravened the spirit and letter of the FMLA.
So, why does this seemingly minor issue matter? Although the jury verdict was merely $1,300, the court also awarded Ms. Estes approximately $76,092.83 for her attorneys’ fees and costs. The employer also undoubtedly had a significant legal bill. Unlike the normal “American rule” in which each side bears their own attorneys’ fees, the FMLA not only allows the court to award attorneys’ fees to the prevailing plaintiff, the FMLA requires it to do so. 29 U.S.C. § 2617(a)(3).
The Estes case presents several important lessons for companies that have employees compensated by commissions and who are subject to the FMLA. Namely, the company should:
- Develop and define clear company policies regarding the payment of commissions to employees on paid and unpaid leave.
- Make sure the policies are consistent and non-discriminatory. Always treat similarly situated employees the same—regardless of whether they are on FMLA or other forms of paid or unpaid leave.
- Apply company policies consistently and do not deviate from them. Educate your managers and salespeople about such policies. The company is more likely to run into trouble when it does not follow its own internal policies, or employees do not understand how to apply them.
- Do not be penny-wise pound foolish. Paying modest commissions to employees on leave creates employee good-will. It is not worth trying to save a few thousand dollars in commissions when doing so is contrasted with the undoubtedly higher litigation expense of defending a lawsuit over the payment of commissions.
The above steps should help avoid costly litigation and potentially large attorney fee awards such as in Estes.