Advances That Exceed Commissions- Are Salespersons Liable for the Excess?
| Publication year | 1986 |
| Pages | 2015 |
1986, November, Pg. 2015. Advances that Exceed Commissions- Are Salespersons Liable for the Excess?
Today's economy has forced businesses to reexamine the basis on which they compensate their employees. In lieu of a fixed salary, employers are again favoring compensation based upon commissions or a share of profits.
A commission-compensated employee could conclude a sale today for an employer but would not be entitled to a commission until the purchaser has paid on the contract. The timing often leaves many months between the salesperson's work and the compensation for that work. For that reason, employers historically have given salespeople payments, calling it an "advance" or "draw" on commissions. As commissions are earned, they are deducted from the monies advanced by the employer to the employee.
None of the above should be surprising. What may be surprising is the way the courts react when an employee is terminated or is fired and has previously received advances in excess of commissions earned. This article addresses the question of a salesperson's liability to return such excess advances.
The overwhelming preponderance of case law, both within(fn1) and without(fn2) the state of Colorado, has held that an employee is not personally liable for an excess of advances or draws over the earned commissions, bonuses or share of profits. Courts have allowed an exception to this general rule only when a specific and unambiguous agreement between the employer and salesperson states that liability for excess of advances over earned commissions is the personal responsibility of the employee, regardless of resignation or termination.(fn3)
In the bellwether case on this subject in Colorado, Argonaut Builders, Inc. v. Dare,(fn4) a salesman who solicited building contracts was given a period advance against future commissions. When the salesman terminated his employment, he had received approximately $2,500 of advances in excess of earned commissions. The Colorado Supreme Court set the general rule as follows:
[W]here a contract of employment provides for advances to the employee to be charged to and deducted from the commission agreed upon as the same may accrue, the employer cannot, in the absence of an express or implied agreement or a promise to repay any excess of advances or commission earned, recover such advances from the employee.(fn5)
The Argonaut decision has been cited approvingly by the Supreme Court in the brief flurry of commission liability cases that surfaced from 1961 to 1972.
In Badger v. Nu-Tone Products Co., the Colorado Supreme Court was again faced with the question of excess advances to salespeople.(fn6) In its affirmation of the Argonaut decision, the court found that periodic advances or draws given in consideration of the employee's continued activity are actually...
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