Don't Get Stiffed On a Spiff Commission

In addition to the standard commission a sales person receives from his or her company, "spiffs" are paid, either by a manufacturer or employer, directly to a salesperson for selling a specific product. Companies offer their salespersons an opportunity to claim spiffs as a benefit of employment. If the manufacturer of the sold product pays the spiff, usually, the sales person's employer must provide certain information to the manufacturer such as the serial or model number, in order for that sales person to claim the spiff.

Legal issues arise when the company terminates the sales person's employment and in addition to various unpaid sales commissions the company owes the employee (or independent contractor depending on the case), the company may fail to provide the sales person with the necessary information to claim the spiffs. The time deadlines for applying directly to the manufacturer for spiffs are generally short and the failure to meet them will have the legal effect of that sales person forfeiting the spiffs. Why companies do this can be due to a variety of reasons. Some may be to purposely spite the sales person. Others may be that it simply is too much trouble for the company to assist the salesperson once he or she has left and the company and the company has no real incentive to help a recently separated employee.

Don't kid yourself; spiff commissions can be rather substantial and an important benefit for sales persons within certain industries. Ultimately, if the company either purposely or negligently obstructs the sales person's ability to claim spiffs is the company legally responsible to the sales person?

What Are My Rights?

The answer may not be what it seems. A typical unpaid sales commission case involves breach of contract and tort claims against the company, meaning that the company failed to pay a sales commission duly owed a sales person. For such conduct, our law firm typically brings five to seven different legal counts against the company, ranging from breach of contract, promissory estoppel, negligent misrepresentation, intentional misrepresentation and unjust enrichment. In the case of spiffs, the salesperson's company didn't make a specific promise to the sales person to pay the spiff, the manufacturer did. Furthermore, the manufacturer only promised to pay the spiff if certain information was provided to it by the sales person. The fact that the sales person couldn't provide that information within the requisite time limits, isn't the manufacturer's fault and no claim lies against the manufacturer for anything. True, the employer's company promised the sales person that it would assist him or her in obtaining the spiff and it broke its promise when failing to provide the necessary information, but how are those damages legally measured?

Do you have any recourse? Ultimately, the employer company is liable for breach of contract in this scenario because it made a promise to an employee to provide a benefit to the employee. The law thinks of it as if the company promised to provide the employee with any other benefit such as medical insurance, wherein the benefits of coverage are ultimately provided by a third party such as Blue Cross. Legally, when the company broke its promise to assist the salesperson in obtaining the spiff, it's analogous to the company failing to send in proper information to the employee's health care provider, which prevented the employee from obtaining the proper medical coverage for a serious illness. The resulting damages of that event, such as the employee being responsible to pay a $25,000.00 hospital bill are a consequence of the employer's failure to provide the promised benefit. These are known as consequential damages.

With regard to spiffs, a company's failure to provide the sales person with the information necessary to claim the spiff may also be held for consequential damages of a breach of contract. Damages would equal the amount of money the manufacturer would have paid the sales person, but for the information not having been sent in a timely manner.