In a ruling that should command the attention of all employers in New Jersey who employ and pay commission-based salespersons, the New Jersey Supreme Court has held that commissions are wages under the New Jersey Wage Payment Law (WPL) because they are “direct monetary compensation for labor or services rendered by an employee.” The opinion makes clear there will be no exceptions: “Compensating an employee by paying a ‘commission’ for ‘labor or services’ always constitutes a wage under the WPL.”
The New Jersey Supreme Court was reviewing the Appellate Division’s opinion that held the commissions at issue in this case were not wages under the WPL because the commissions fit the definition of “supplementary incentives” which, per the statute, are not wages. As noted in a previous alert, the Appellate Division had held that since the Personal Protective Equipment (PPE) sales that the plaintiff, Rosalyn Musker, made were not referenced in the sales commission agreement between the parties, then those additional sales she made were not wages but instead “special compensation” offered during a unique time, at the onset of the COVID-19 pandemic.
Turning to the facts here, Musker earned $80,000 as a base salary. The employer’s Sales Commission Plan (SCP) allowed employees to earn 1.75% on commissions on the first $729,167 of sales and up to 4% commission based on benchmarks beyond that amount. The SCP included language that it was “intended to cover all sales situations.” In response to the COVID-19 pandemic, the employer decided to sell PPE. This was a significant departure from its usual line of business of selling software subscription packages to apparel manufacturers. Musker sold PPE to New York State and Bergen Township and in the process generated approximately $34,448,900 in gross revenue.
Musker thereafter filed a complaint because a dispute arose over the amount of commission she was entitled to. The parties also disagreed over whether these commissions were wages under the WPL or were excluded from the statute as supplementary incentives.
To resolve this dispute, the Court turned to the WPL statute. The WPL defines “wages” in relevant part as “direct monetary compensation for labor or services . . . determined on a . . . commission basis excluding . . . supplementary incentives . . . .” Although many of the phrases in the preceding sentence are undefined in the statute, the Court looked to dictionary definitions to conclude that because “a commission directly compensates an employee for performing a service, it always meets the definition of ‘wages’ under [the statute] as ‘direct monetary compensation’ for ‘labor or services’ rendered by an employee.”
The Court also turned to dictionary definitions to define “supplementary incentive” as “compensation that motivates employees to do something above and beyond their ‘labor or services.’” Therefore, a commission earned by an employee can never qualify as a supplementary incentive because the commission is received as a result of “labor or services rendered by an employee.” Under this definition, the Court appeared to endorse the following examples of supplementary incentives: “working out of a particular office location, achieving perfect attendance, referring a friend to apply for an open position, or participating in an office costume contest.” All of these examples go beyond the employee’s labor or services.
Applying this framework to the facts of the case, the Court concluded that Musker earned the commissions as a result of her labor or services, and as a result, the commissions qualified as wages under the WPL. The Court also rejected the argument that because PPE was a new venture brought on by the COVID-19 pandemic, that would alter the outcome. Even if a salesperson is only selling a particular product for a limited time, that does not mean the commissions are not wages. Finally, the Court also rejected the argument that if a salesperson earns a base salary, commissions earned can then be classified as supplementary incentives.
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