Legal Trickery – Eric A. Parzianello

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Posts Tagged ‘employment agreements’

Do You Have a Written Post-Termination Commission Agreement? If Not, It Could Be Costly

Posted by Eric Parzianello on September 18, 2014

When commission based employees terminate their employment, do they get commissions for sales made after they leave?  If no contract exists regarding post-termination commissions and the salesperson procured the sales, the employer must pay commissions even after termination of the employee under the procuring cause doctrine.  We recently obtained a significant victory for our client in Oakland County (MI) Circuit Court in large part because his former employer failed to have any written agreement with him regarding commissions.

What is the procuring cause doctrine?  The procuring-cause doctrine applies when the parties have a contract regarding the payment of sales commissions, but the contract is silent regarding the payment of post-termination commissions. The procuring-cause doctrine acts as a default rule for interpreting a contract that is silent with respect to commissions on sales generated by a salesperson before, but consummated after, termination of the relationship between the salesperson and the principal.

An salesperson is entitled to recover a commission whether or not he has personally concluded and completed the sale as long as  his efforts were the procuring cause of the sale.

How is “procuring cause” defined? A procuring cause has been defined by Michigan courts as the “chief means” by which a sale was finally effected. Whether a salesperson was a procuring cause generally turns on the facts of each case making written agreements critical in order to avoid litigating those facts.

Employers and salespersons both should minimize their litigation risk by having written agreements in place before any termination occurs.

Eric Parzianello
eparzianello@hspplc.com
313-672-7300

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Posted in Business Litigation, General Employment Law | Tagged: , , , | Leave a Comment »

How To Breach An Employment Agreement and Still Enforce Your Former Employee’s Non-Compete

Posted by Eric Parzianello on April 10, 2014

Can non-compete agreements still be enforceable when an employer fails to pay the employee amounts due under the same contract?  A Florida court found that answer to be ‘yes’.

A typical defense of an employee accused of violating a non-competition agreement is that the employer breached some agreement either by failing to pay amounts due under the contract or in some other manner. While this is usually a valid defense which could undermine an injunction enforcing the non-competition provision, careful drafting by the employer can make its prior breach irrelevant.

In the recent Florida case of Richland Towers v. Denton, the trial court found that the employer had not paid bonuses to the employee as required under the employment agreements. The court accepted the argument that this was a prior breach rendering the non-competition covenants unenforceable. The 2nd District Court of Appeals, however, reversed this decision. It found that to “reach this conclusion, the circuit court necessarily had to determine that the parties’ obligations under the contracts were dependent covenants. When a dependent covenant has been breached, the entire contract is virtually destroyed.”

The agreement however had an explicit provision which “trumped” the general rule that covenants are considered dependent.  The agreement provided as follows:

“Covenants Independent. Each restrictive covenant on the part of the Employee set forth in this Agreement shall be construed as a covenant independent of any other covenant or provisions of this Agreement or any other agreement which the Corporation and the Employee may have, fully performed and not executory, and the existence of any claim or cause of action by the Employee against the Corporation, whether predicated upon another covenant or provision of the Agreement or otherwise, shall not constitute a defense to the enforcement by the Corporation of any other covenant.”

Because the covenants were independent, the employer’s prior breach of the agreement was irrelevant to the enforcement of the non-competition provision.

On a separate issue, the Court of Appeals also found that the discontinuation of business by the corporation which signed the agreements was irrelevant: another provision in the agreements provided that the corporation’s affiliates could enforce the non-competition provisions:

“Corporation (and each of the Affiliates comprising the Corporation) shall be deemed to be third party beneficiaries under this Agreement with the right to seek enforcement hereof and make claims hereunder, including but not limited to claims arising under this Section 10.”

The Court of Appeals therefore reversed the denial of the temporary injunction.  This decision is another example that the likelihood of success on a request for an injunction enforcing a non-compete provision depends in large part on the language of the contract.

Eric A. Parzianello
eparzianello@hspplc.com
313-672-7300

 

Posted in Business Litigation, General Employment Law, Non-Compete Law | Tagged: , , , | Leave a Comment »