Does part of your compensation come from sales commissions? Do you have a long-term incentive benefit as part of your compensation package? Do you have an employment agreement that outlines the requirements for payment of your sales commissions and incentives? If so, then you should note a recent opinion from the U.S. Court of Appeals for the Fifth Circuit that could make it easier for you to collect your sales commissions and other benefits if you are terminated.

Recent Court Decision Came Down on the Side of the Terminated Employee

The Fifth Circuit case is Sellers v. Minerals Technologies, Inc. and CETCO Energy Services Company, L.L.C. In that case, David Sellers was hired as CETCO’s vice president of business development in January 2010. He signed an employment agreement that provided for a long-term incentive payment of five percent of the net margin of sales made under his supervision.

Employee Was Terminated Without Cause Due to Company Downsize and Employer Claimed That Employee Lost His Incentive Benefit as a Result

Sellers’ employer, CETCO, was purchased by Minerals Technologies around May 2014. Minerals Technologies asked CETCO to downsize. Sellers had allegedly told his employer that he did not intend to stay at the company beyond the end-date of his employment agreement, January 18, 2015. Sellers was eventually terminated without cause as part of a downsize. The federal district court found that Sellers’ date of termination was before the end-date of his employment agreement, December 19, 2014.

Lawsuit Claimed Breach of Contract for Failure to Pay Incentive Under Employment Agreement

In his lawsuit in Texas, Sellers asserted several claims against the defendants, CETCO and Minerals Technologies. One of his claims was for breach of contract for their failure to pay him $428,681.71 for the long-term incentive payment under his employment agreement.

The federal district court ordered CETCO and Minerals Technologies to pay Sellers certain undisputed commissions owed to him. However, the court also granted summary judgment in favor of the defendants, CETCO and Minerals Technologies, finding in part that Sellers was not entitled to the long-term incentive benefits because his employment agreement required that he be employed on January 18, 2015 in order to receive those benefits. The court determined that this requirement was an unmet condition precedent. A condition precedent is “an act or event that must take place before performance of a contractual obligation is due.”

The Federal District Court Decision was Reversed on Appeal

Sellers then appealed the federal district court’s denial of his long-term incentive benefits to the Fifth Circuit. On appeal, the Fifth Circuit examined two key provisions in Sellers’s employment agreement.

Section 3(c) stated:

“If Employee is still employed on January 18, 2015, then after that date but before March 15, 2015, Employee shall receive an amount equal to 5% of the Net Margin of Sales of the New Build Capital Process Equipment business …. Employee will not be eligible for this long-term incentive if he resigns or if he is terminated for cause prior to January 18, 2015.”

Section 11(d) stated:

“Employer may terminate Employee’s employment without cause by giving Employer [sic] thirty (30) days written notice of termination, or in its discretion, pay in lieu of notice. Employer shall be obligated to pay Employee’s base salary to the date such notice is effective, along with any commission and long-term incentive due pursuant to Section 3.”

The Fifth Circuit agreed with the federal district court that Section 3(c) of Sellers’ employment agreement unambiguously created a condition precedent that required Sellers to be employed on January 18, 2015 in order to receive the long-term incentive benefits. However, the Fifth Circuit determined that the condition precedent was satisfied, or alternatively, excused under the facts of the case.

The summary judgment evidence showed that Sellers received a payment for one month’s salary, $14,205, on January 15, 2015. In accordance with Section 11(d), this payment was for an additional thirty days of wages. The Fifth Circuit concluded that the effective date of Sellers’s termination was thirty days after January 15, 2015, or February 14, 2015. Thus, the Fifth Circuit determined that the condition precedent requiring Sellers to be employed on January 18, 2015, in order to receive his long-term incentive benefits, had been satisfied. According to the Fifth Circuit, the federal district court erred in finding that the condition precedent had not been met.

Condition Precedent Fulfilled or Excused According to the Fifth Circuit

The Fifth Circuit found that the condition precedent was fulfilled or excused under the facts of the case. A condition precedent can be considered fulfilled “if one party prevents another from performing a condition precedent or renders its fulfillment impossible, then the condition may be considered fulfilled.” The defendants had terminated Sellers in December 2014 and thus “unilaterally prevented fulfillment of the condition at issue and cannot rely on nonfulfillment to deny” the long-term incentive benefits to Sellers due under his employment agreement.

Thus, the Fifth Circuit reversed the federal district court’s grant of summary judgment in favor of the defendants on the issue of the payment of the long-term incentive benefits due to Sellers. The case was remanded by the Fifth Circuit to the federal district court for the purpose of determining the amount of long-term incentive benefits owed to Sellers and entering judgment in that amount.

Understand the Provisions in your Employment Contract that Define the Payment of Sales Commissions and Incentive Payments

You should understand what your employment agreement says and doesn’t say. If you have an employment agreement that provides for sales commissions or other incentives which have been earned but not paid, contact us. We help employees enforce their employment agreements. We also help employees get the commissions and incentives they deserve. If you have any questions about your employment agreement, click here to find the contact us form on this website. Fill it out and send it in to get the conversation started. Kilgore & Kilgore offers a free review of the facts of your case. Just click here Contact Kilgore & Kilgore.