Maryland Wage Payment and Collection Law: Payment of Commission Based on Employee Still Being Employed on Date of Payment Is Struck Down Where Employee Has Met Requirements to Receive Commission

Date: February 20, 2002

In McCabe v. Medex (Maryland Court of Special Appeals, Sept. 2001) , Timothy McCabe began working for Medex as a sales representative in November 1998. McCabe received an annual salary of $49,000, plus commissions. At Medex, the fiscal year ran from February 1, 1999 through January 31, 2000. Pursuant to Medex’s Employee Handbook, all commissions were “conditional upon meeting targets and the participant being an employee at the time of actual payment . . . .”

McCabe voluntarily resigned Medex on February 4, 2000. Medex however, did not schedule the payment of commissions earned during Fiscal Year 2000 until March 31, 2000. Because McCabe was not an employee of Medex on that date, he did not receive his commissions totaling $32,850.73. McCabe sued Medex pursuant to the Maryland Wage Payment and Collection Law, Sections 3-501 to 3-509. McCabe sought the sum of $36,450.73, plus $109,352.19 in treble damages, plus prejudgment interest, costs and attorneys fees.

The circuit court denied the parties' cross-motions for summary judgment. The parties then filed a joint motion to bifurcate, requesting an initial ruling on the applicability of the Act. The trial court found the Act inapplicable and entered judgment in favor of Medex. Upon review, the Maryland Court of Special Appeals reversed. The Court’s decision focused on Medex’s requirement that employees continue to be employed with the company at the time it pays out the commissions. That requirement conflicted with the Maryland Wage Payment and Collection Law, the court said, which instructs employers to pay all wages earned as “if the employment had not been terminated.”

“Here, the employee had satisfied all of the requirements for receiving a commission except one – he was no longer employed there,” Judge Arrie W. Davis wrote for the court. “Appellant earned those commissions as wages . . . and the additional conditions appellee placed on its employee were, therefore, invalid in light of Maryland statutory and common law.” The court distinguished McCabe’s case from the recent Court of Appeals decision in Whiting-Turner v. Fitzpatrick. In that case, the employee had been promised profit-sharing after two years of employment, provided the company was profitable. The company, however, announced that it was giving the employee the bonus before the two years were up. The employee then left the company and was denied the bonus. The Court of Special Appeals held that because the employee left before two years with the firm, he was not entitled to the bonus. It was not part of his compensation package, according to the court.

In McCabe’s case, however, the commissions were part of his compensation package, the Court of Special Appeals said. “The ‘bonus’ in Whiting-Turner was not promised for service,” Davis wrote. “The Commissions promised appellant, however, were unambiguously promised for service, the amount received having been directly related to the amount of sales completed.” According to the Court,” . . . [McCabe] completed all of the tasks required of him prior to the conclusion of the Fiscal Year: closing his jobs, ensuring that the customers received the product, and securing payment from the customers. As of January 31, 2000, there was nothing more he could have done to facilitate the receipt of his commission; his employer, nevertheless, placed an additional condition upon payment. In order to receive the incentive pay, he was required to remain employed through the arbitrary date of March 31, 2000, a date wholly unrelated to the completion of the employee’s duties.”

The lower court had found in Medex’s favor, holding that the Maryland Wage Payment and Collection Law applied only to wages that are due at the time employment terminates, and that the commissions were not due because McCabe failed to meet the condition that he still be employed.

However, according to the Court of Special Appeals, “Contrary to the trial Court’s holding, a contract conflicting with public policy set forth in a statute is invalid to the extent of the conflict between the contract and that policy.” The only bit of good news for Medex was the Court’s finding that the Employer withheld the commissions as a result of “a bona fide dispute,” rather than “in violation of [the statute].” Accordingly, McCabe’s request for triple damages were denied and his recovery limited to the actual wages withheld. This case serves as a warning to employers to review their current commission ageements and adjust them, if needed, in accordance with this recent decision.