New Jersey Supreme Court Decides that Commissions are Commissions, and Therefore Wages

Several New Jersey employment laws govern the payment of wages.  The New Jersey Wage and Hour Law (along with the Federal Fair Labor Standards Act) governs minimum wage and overtime.  The New Jersey Wage and Hour Law governs what are considered wages and when they must be paid.  The Supreme Court of New Jersey considered whether and under what circumstances “commissions” are considered “wages” protected by the Wage Payment Law.

 

Background – PPE Sales at Suuchi, Inc., During the Pandemic

Suuchi, Inc. sells a software-driven platform.  Its salespeople are paid commissions of 1.75 percent for the first $729,167 of sales based on annual recurring revenue, and 4 percent beyond that.  Suuchi’s plan stated that it was “intended to cover all sales situations.”  During the Covid Pandemic, Suuchi branched out into selling personal protective equipment (PPE).  The company sent an email advising its sales people that commissions would be based on net revenue, and commissions would be 4 percent when net revenue generated on PPE.  However, the chief executive officer sent a follow-up email clarifying that “we are providing the same commissions on these one time orders and not penalizing for not being [annual recurring revenue].”

Rosalyn Musker made sales of PPE worth $34,448.900 in gross revenue.  Musker contended that she was owed $1,377,956 in commissions of 4 percent on gross sales.  Suuchi, however, claimed that she was owed $476,250, or 4 percent of revenue on net sales of PPE.

 

Musker’s Lawsuit

Musker filed suit in the Law Division of the Superior Court of New Jersey.  The Law Division judge found that Suuchi had breached its contract with her by failing to pay her 4 percent on net sales.  However, it found that the “commissions” were not “wages” under the New Jersey Wage Payment Law because they “supplementary incentives,” and therefore not commissions.

Musker appealed the dismissal of her claims under the Wage Payment Law to the Appellate Division of the Superior Court of New Jersey (but not the finding that she was only entitled to 4 percent of the net revenue).  In a decision I discussed here, the Appellate Division denied her appeal and upheld the Law Division judge’s decision.

Musker appealed to the Supreme Court of New Jersey.  The Supreme Court reversed the Appellate Division and Law Division decisions, finding that the commissions on PPE sales were wages under the New Jersey Wage and Hour Law, not supplementary incentives.

 

The Supreme Court Analyzes the New Jersey Wage Payment Law – Commissions are Commissions are Commissions

The Supreme Court was clear and unequivocal:

We hold that “commissions” are “wages” under the WPL. The WPL defines “wages” as “direct monetary compensation for labor or services rendered by an employee, where the amount is determined on a time, task, piece, or commission basis. Under that definition, compensating an employee by paying a “commission” for “labor or services” always constitutes a wage under the WPL. Therefore, contrary to the appellate court’s conclusion, a “commission” under the WPL cannot be excluded from the definition of “wages” as a “supplementary incentive.”

The crux of the issue was whether the commissions at issue were actually “commissions” under the New Jersey Wage Payment Law, or whether they were “supplementary incentives”  which the Wage Payment Law excludes from the definition of wages.  The Law Division judge and the Appellate Division decided that the wages on PPE sales were only supplementary incentives because the sale of PPE was not a core part of Musker’s duties.  However, the Supreme Court disagreed.

The Supreme Court explained that whatever it is called, when someone is getting paid for labor or services, such as by selling an employer’s product, the payment is always defined as wages.  Thus, payments for sales of a company’s product, even if it’s not the company’s core product, are commissions, and therefore wages under the New Jersey Wage Payment Law.

The Court explained that wages are always an incentive for doing work.  Therefore, merely because something is an incentive doesn’t make it a “supplementary” incentive and remove it from the definition of wages.  This is true even if the employee receives commissions in addition to a base salary.  It explained:

All monetary compensation arguably motivates, encourages, and incentivizes employees. That is a simple matter of common sense. But the primary question addressing whether compensation is a “supplementary incentive” is not whether the compensation only has the capacity to do those things, but rather whether the compensation incentivizes employees to do something beyond their “labor or services.” If that is the case, then the compensation is a “supplementary incentive” and is excluded from the definition of “wages” under [the New Jersey Wage Payment Law]. In other words, just because compensation has the capacity to incentivize does not mean it is automatically excluded from being a wage as a “supplementary incentive” under the WPL.

The Supreme Court also provided useful examples of supplementary incentives, to distinguish them from commissions:

… some examples of “supplementary incentives” may include payment for sharing office space with another employee, working out of a particular office location, achieving perfect attendance, referring a friend to apply for an open position, or participating in an office costume contest. In those examples, the added compensation is for doing something that is beyond the employee’s “labor or services.” Therefore, “supplementary incentives” under the WPL are distinct from “commissions,” which provide monetary compensation for “labor or services” rendered by an employee.

Thus, the Supreme Court explained, because Musker earned the commissions on PPE sales through her labor or services, the commissions are wages under the New Jersey Wage Payment Law.

 

Why Does All of this Matter?

You may be asking yourself this now, and it’s a fair question.  Musker already won on her breach of contract claim.  Why bother?  The simple answer is money.

In a breach of contract claim, you get compensatory damages if you win – ie., if you prove you were supposed to be paid $100,000 and weren’t, the court will award you $100,000.  However, under the New Jersey Wage Payment Law if you prove you were supposed to be paid $100,000 and weren’t, the court will still award you the $100,000.  However, it will also award you liquidated damages of 200 percent.  Thus, you would receive $300,000 – the $100,000 in compensatory damages plus the $200,000 in liquidated damages. It will also order the employer to pay your attorneys fees and litigation costs.  So the Supreme Court’s decision more than tripled Musker’s recovery.  This is why wage and hour claims are strong incentives for employers to ensure that they are strictly complying with their legal requirements with regard to properly paying their employees.

 

The Takeaways

• For Employers. It is vital to always ensure that you are paying your employees what they are owed.  The consequences for a mistake are drastic.
• For Employees. New Jersey employment law provides strong protections for employees, and effective avenues of relief when they have not been properly paid.

 

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