Sales Commission Claims
Many businesses motivate their salespeople through commissions. This means salespeople will collect a percentage of their sales or the business’ profits as part of their compensation, and they make more money if they successfully make more sales. However, some salespeople are not actually paid commissions that are owed, or they may be paid less than what they are owed. There are some businesses that terminate a sales contract simply to avoid paying commissions. Sales commission disputes in Illinois are usually governed by the Sales Representative Act. At Loftus & Eisenberg, Ltd. our experienced commercial litigation attorneys have helped many clients in the Chicago area and elsewhere in Cook County handle claims under this law.Claims Based on Sales Commissions
The Illinois Sales Representative Act (ISRA), 820 ILCS 120, has a number of provisions to help make sure that salespeople get paid the commissions they are owed and to deter businesses from using unfair practices to avoid paying their salespeople. The law was designed as a corollary to the Illinois Wage Payment and Collection Act (IWPCA), and it is supposed to be interpreted to protect sales representatives who would be protected under IWPCA, but are not because of their independent contractor status.
A “principal” under this law can include a sole proprietor, partnership, corporation, or any other business entity that manufactures or distributes a product for sale, contracts with salespeople in order to solicit orders for a product, and compensates the salesperson, partly or entirely by commission. A “sales representative” under ISRA is somebody who contracts with the principal to solicit orders for the product and is paid in part or totally by commission. The definition excludes, however, somebody who simply places orders for his or her own account in order to resell the product or somebody who is considered the principal’s employee under the IWPCA.
ISRA provides that the contractual terms between a principal and salesperson are controlling when it comes to the timing of commission payments, but if there is no contract that sets forth the timing, past practice shall control. If there is neither past practice nor a contract, the Illinois custom and usage for payments in the industry control the timing.
What if the principal terminates the sales contract? In that case, ISRA provides that the commissions due at the time of termination must be paid within 13 days of the termination. Any commissions due after the termination are owed within 13 days of the date when the commissions become due. This rule cannot be waived in the contract between the principal and the salesperson.
When a principal fails to make timely commission payments or terminates the contract without abiding by the rules regarding timely payment, it can be sued in civil court. Exemplary damages, attorneys’ fees, and costs cannot be recovered under common law for breach of contract, but they are specifically addressed by ISRA. A successful sales representative can recover not only the amounts that are due, but also exemplary damages that are not more than three times the amounts still due. It should be noted that, as a practical matter, Illinois courts usually award exemplary damages only when there is a finding of culpability, in spite of the mandatory language of the statute. The principal is required to pay the sales representative his or her attorney’s fees and costs.