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February 24, 2020

Legal Update
Kenneth N. Thayer

SJC rules that unpaid commissions are “lost wages” subject to treble damages under the Massachusetts Wage Act

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In its recent decision in Parker v. EnerNOC, the Supreme Judicial Court ruled that the Massachusetts Wage Act allows a wrongfully terminated employee to recover three times the amount of any unpaid commissions that the employee would have been eligible to receive, had it not been for their wrongful termination. Under this expansive interpretation of the Wage Act, employers cannot escape liability and treble damages by arguing that commissions had not yet become due and payable at the time of an employee’s termination, where the termination was itself retaliatory or otherwise unlawful.

The case involved a dispute between Francoise Parker and her former employer, EnerNOC, Inc., over the nonpayment of commissions in connection with a lucrative, multi-year sales contract Parker secured for EnerNOC. Parker claimed that, under EnerNOC policy, she was entitled to two commissions: the first commission on the value of the one-year guaranteed portion of the sales contract, and a second commission if and when the customer declined to exercise its opt-out right at the conclusion of the first year (known as the “true up” commission). EnerNOC disputed Parker’s claim, arguing that its policy only provided for commissions on the guaranteed portion of the contract. After complaining to EnerNOC that she was not receiving her full commission on the guaranteed portion of the contract, Parker was fired. And while the customer subsequently declined to opt out of its contract, EnerNOC claimed that Parker was not entitled to any true-up commission because she was no longer employed by the time that commission became due and payable.

Parker brought suit against EnerNOC and two company officers in the Superior Court’s Business Litigation Session, alleging discrimination, breach of contract, and Wage Act violations, among other claims. At trial, the jury found EnerNOC liable for breach of contract and awarded Parker roughly $25,000 as the unpaid portion of her first commission and approximately $349,000 as the entirely unpaid true-up commission. The jury also found Parker liable for retaliatory discharge under the Wage Act and awarded Parker substantial emotional distress and punitive damages. The trial judge applied the Wage Act’s treble damages provision to the $25,000 lost commission award, but did not treble the true-up commission, finding that the Wage Act did not apply to that commission because it had not become “due and payable” to the employee.

Both parties appealed, and the SJC took the case on direct appellate review. First, the Court rejected EnerNOC’s claim that it did not owe any true-up commission to Parker because its policy provided only for payment of commissions on the “guaranteed portions” of contracts. The Court found that the policy was ambiguous, and the jury was therefore free to accept Parker’s evidence that the company and its salespeople understood the policy to provide payment of commissions on the full value of a sales contract once any applicable opt out option had expired or been declined.

Next, the SJC turned to the central issue of the case: whether EnerNOC’s nonpayment of the true-up commission—which had technically not yet been earned at the time Parker was fired—constituted a Wage Act violation subject to treble damages. The Court acknowledged that the Act was written to expressly include those commissions that had “become due and payable,” and that Parker’s true-up commission did not meet that test. However, the Court went on to rule that the Wage Act should not be so narrowly construed, holding: “Commissions that are not yet due to be paid may nonetheless constitute lost wages if the employer’s violations of the act prevent payment of those commissions.”

Here, because the jury found that EnerNOC unlawfully terminated Parker in retaliation for her complaint about the guaranteed portion of her commission, Parker was entitled to recovery under the Wage Act for all commissions she would have received if she had not been wrongfully terminated. As the SJC explained, this outcome is warranted because “a policy that conditions payment on continued employment cannot relieve an employer from the obligation of paying a commission where the employer terminates its employee in retaliation for complaining about wage violations in the first place.”

The SJC’s broad interpretation in Parker of employer obligations under the Wage Act is a significant development for all employers doing business in Massachusetts, and particularly to those with employees paid on commission. As this decision confirms, employers seeking to avoid the Act’s treble damages penalties must not only take precautions to avoid ambiguity in their employment agreements and policies addressing compensation, but must also remain at all times cognizant of any unpaid, and even unearned, compensation to which their employees may have a claim.