Is Employee Out of Commission? Not So Fast, Says Appellate Court

When an employer changes its contract with an employee, the change should be communicated clearly—and preferably, in writing. Otherwise, the employer may be at risk of finding that the old terms still control.

For example, last week in Balding v. Sunbelt Steel Texas, Inc., No. 16-4095 (10th Cir. Mar. 13, 2018), a federal court of appeals ruled that an employer had to go to trial over a salesman’s claim for unpaid commissions. 

The salesman’s original contract called for him to be paid $30,000 and 1.5 percent commission on total gross sales. Less than a year after he started working, the employer (“Sunbelt”) raised his salary to $40,000. Sunbelt’s executive vice president claimed that she told him that the “raise was in lieu of commissions,” but the salesman denied that statement.

Over the next few years, the salesman received several more raises, and was also paid bonuses. Sunbelt never paid him any commissions. 

The salesman then took some time off after he had a panic attack. During his absence, Sunbelt concluded that he had lied about an open purchase order, and fired him. He sued, claiming a breach of contract as well as violations of the Family Medical Leave Act (“FMLA”) and the Americans with Disabilities Act (“ADA”).

The trial court granted summary judgment to Sunbelt on all of his claims, but the Tenth Circuit reversed on his breach of contract claim, sending the claim back for a trial. While the salesman had accepted the raises and did not complain about the lack of commissions, this was not sufficient to establish that Sunbelt had actually offered to pay him raises in lieu of commissions. The corporate records didn’t clearly show that this was the offer that had been made, and the salesman disputed that he had been told about this term of the offer.   

As a result, a jury must now decide whether Sunbelt made a definite offer to substitute raises for commissions. 

The Balding decision shows yet again that it is better to communicate changes to the terms of employment clearly and in writing. Relying on oral communications, as Sunbelt did here, leaves room for a dispute as to what was actually said. If Sunbelt had told the salesman in writing that it was giving him raises but that he would no longer be entitled to commissions under his original agreement, in all likelihood, the salesman’s claim would have failed. Now, however, Sunbelt is facing a jury trial and potential liability for those commissions.

• Breach of Contract
• Civil Litigation
• Summary Judgment
• Termination With or Without Cause
• Wrongful Termination