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Punishing Success – Dismissals for Cause of High Performing Commissioned Sales People

Posted On: January, 23 2015

Imagine that you are a successful commissioned sales person, having diligently worked for 15 years for Company X. You sell widgets, and are paid a commission as a percentage of the net profit on every order of widgets that you close.

Your compensation formula has been essentially the same since you started with Company X. You earn 10% commission on the net profit of every order, plus a small base salary.

Recently, there have been changes in the widget market. Due to technological innovations, costs have dropped. Demand has also increased. The market price for widgets has remained constant. The result is that you are selling a much higher volume of widgets, with increased profitability. You work hard to get the maximum benefit out of this situation, putting in overtime and significantly increasing your client base.

Your income almost doubles. You have the best year of your career and you are feeling good. The good news continues for a second year, and you do even better than the year before. It appears as though the high profitability of the product is a continuing trend. You take full advantage of this trend. You expect a bonus, a promotion, or at least a pat on the back. Instead, you get a pink slip.

Not only is your employer firing you in the midst of the best sales run you’ve ever had, but the employer is alleging that you engaged in serious misconduct. You are being dismissed for cause, and Company X is refusing to pay you any notice or severance. You are not even eligible for Employment Insurance.

Sadly, this scenario is more common than you might imagine. For commissioned sales people who find themselves in a similar situation, the first reaction is frequently disbelief or denial, mixed with anger. How can I be fired after I had my best year ever? Why is this happening to me?

The answer is subtly different depending on the case, but the ultimate reason is always money. If a sales person makes too much money too quickly, this can make the sales person a target for dismissal.

Company X may feel that given the changes to the market, and the higher profitability of widgets, a 5% rate of commission would be more equitable. Company X would also like to increase its dividend to please the shareholders, and your skyrocketing commission income detracts from that objective. However, if Company X suddenly announces that your commission rate is being reduced to 5%, one may decide to resign for just cause and allege constructive dismissal. You have come to rely on a 10% rate of commission, and you are entitled to rely on that rate. You have a binding agreement with Company X that you will be paid 10% commission. Company X would be on thin ice if they attempted to change the commission formula now that business is booming.

Instead, Company X realizes that if it wants to pay 5% commission, it will need to terminate you, hire a new salesperson, and present that sales person with a contract that says 5%. In other words, to get rid of your 10% contract, Company X needs to get rid of you.

This nightmare scenario is something that we encounter with alarming frequency. But the important thing to remember is that this is not necessarily the end of the story. Prevention is step one. If you are a successful commissioned sales person having the best year of your career, do not take anything for granted. Do not assume that your success gives you any measure of protection – in fact it can make you more vulnerable. Don’t give the employer any basis to dismiss you and give your accounts and the benefit of your hard work to someone else.

Get legal advice if you are confronted by this type of situation. Do not wait until you’ve already been terminated, pushed to resign, or pressured to accept an unfair severance package. Seek legal counsel as soon as you become aware that your employer is investigating your accounts. Do not sign anything without legal advice. How you handle the investigation, and how you handle any disciplinary measures that may be imposed, is going to be critical in terms of pursuing a case for wrongful dismissal.

 

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