In Texas Contracts, Say What You Need to Say
Although not his most lyrically creative effort, John Mayer’s “Say” has a very important lesson for those drafting contracts: “Say what you need to say.” That refrain, which can be heard over 40 times in the original song, is one which employers would do well to remember when drafting employment-related contracts in Texas, especially those involving commissions and bonus payments. And, thanks to a recent Texas Supreme Court decision, employers needn’t look very far to see the consequences of failing to heed Mr. Mayer’s advice.
On May 20, 2022, the Texas Supreme Court issued an opinion in which it answered the question of whether a fired employee can be entitled to receive commission payments when the employee’s employment agreement did not explicitly state that receipt of the commission payments was contingent upon the employee’s continued employment through the date of payment. In the case at issue, the employee had negotiated a deal with a customer four days before he was fired, although the deal was not executed until the day after his termination. A dispute then ensued as to whether the employee was entitled to the commission — an issue that his agreement did not squarely address.
In reaching its decision that the disputed commission had been earned and was payable, the Court relied on the “procuring-cause doctrine,” a principle established over a century ago in the broker context and that applies to agreements involving commission payments that are silent with respect to how the commissions are realized or whether the right to the commissions extends to sales closed after the employment relationship ends. Under that doctrine, an individual’s entitlement to a commission vests on the individual having procured the sale, not on the date of sale documentation being signed or closed, or upon the commission actually being paid. Application of the doctrine in this case resulted in the Texas Supreme Court reversing a court of appeals decision and affirming a jury verdict of more than $960,000.
It’s important to note that the procuring-cause doctrine is simply a default rule and that it does not strip contracting parties of their ability to modify their contractual relationship or to contract regarding when commissions or other payments will, in fact, be earned. As the Court made clear, “[p]arties [are free to] condition the obligation to pay a commission on something other than procuring the sale — they need only say so.” Ergo, employers should take a page out of Mr. Mayer’s catalogue, and say what they need to say by specifying in their contracts when commissions, bonuses, and other payments are earned and paid, and what happens to any unpaid amounts at the end of the employment relationship.
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.