Michigan’s workforce includes a substantial number of employees and independent contractors who earn part or all of their compensation by way of commission. This is particularly true in the automotive industry where such commissions are calculated as a percentage of sales, units sold, or profits.
On most occasions, these types of commission structures are spelled out in a written policy or contract, but sometimes the employer or business fails or even refuses to pay earned commissions to the employee/independent contractor. Michigan law prohibits this and provides for a legal action to enforce payment.
The specific law that governs these situations is the Michigan Sales Representative Commissions Act (“MSRCA”), enacted in 1992 to protect those who have been shortchanged with legal firepower to recover their unpaid commissions. MSRCA covers all individuals (including people, corporations, partnerships, or other legal entities) who sell a good for another – the “principal” – and by doing so, earn a commission. By way of definition, a “principal” is a person or business entity that either 1) manufactures, produces, imports, sells, or distributes a product in Michigan; or 2) contracts with a sales representative to solicit orders for or sell a product in Michigan.
Although the law can be a tough read, MSRCA’s main rule is actually pretty simple:
All commissions that are due at the time of termination of a contract between a sales representative and principal shall be paid within 45 days after the date of termination. Commissions that become due after the termination date shall be paid within 45 days after the date on which the commission became due.
The Act provides that the employer or business that fails to pay the required commission is liable not only for the unpaid commission amount, but also must pay liquidated damages equal to two times the amount of the unpaid commissions due or $100,000.00, whichever is less. For example, if the unpaid commission equals $50,000, then the employer or business must pay the employee/independent contractor an additional $50,000 in liquidated damages. Because the liquidated damage amount can never exceed $100,000, however, if the unpaid commission equals $150,000 then the defendant employer/business is liable to the plaintiff for a maximum additional amount of $100,000 in liquidated damages. That can be a huge payoff!
Furthermore, the law gives employees/independent contractors an advantage by not requiring them to prove that the employer or business acted in bad faith. In one case involving a MSCRA claim, the Michigan Supreme Court determined that an employee/independent contractor need only show that the principal failed to pay the commission, and that the only defense the principal could lawfully raise would be its “inadvertence or oversight” in not paying the amount owed.
If you’re an employee or independent contractor and believe you are owed commissions, MSRCA’s give you a legal club to swing against the employer or business that failed to make good on its commission obligations. Although no one ever really wants to go to court, you may have no choice but to file a legal action to get the money that you are due. We would be happy to evaluate your case and help you determine your rights under the law.