A New Jersey District Court has allowed an independent sales representative to proceed with his lawsuit against his principal company for failing to pay his earned sales commissions. This case reaffirms New Jersey’s strong public policy in assuring sales representatives are timely paid their earned sales commissions.
Prior to New Jersey passing the Sales Representatives’ Rights Act, independent sales representatives often faced an uphill battle when it came to legal disputes concerning unpaid commissions. As an independent contractor who is paid on a 1099 basis, New Jersey Wage Payment law does not protect independent sales representatives from being paid their sales commissions because they are not considered employees under the law. In recognizing the need to protect independent sales representatives from receiving their hard-earned commissions, New Jersey enacted the New Jersey Sales Representatives’ Rights Act that allows for sales representatives to sue for their unpaid earned commissions and imposes significant penalties against principals for failing to pay the commissions in a timely manner.
In the recent case TLE Marketing Co. v. WBM, LLC, No. CV-17-11752 Slip Op. (D.N.J. Sep. 14, 2018) the plaintiff raised a novel argument that, if successful, could expand the reach of the Act. TLE Marketing Corporation is an independent sales agency based in Minneapolis, Minnesota, and has been providing marketing and sales representation for companies since 1976. WBM, LLC is a developer, importer, and distributor of a variety of distinctive products, with a primary focus on Himalayan salt products. WBM is based out of Flemington, New Jersey and has been in business for over 20 years. Starting in 2007, TLE and WBM began working together, signing a sales representative contract that provided that TLE would market and sell WBM products. The two companies enjoyed a lengthy business relationship of almost 10 years until, in June 2017, WBM terminated the sales representative contract. In response, TLE filed a complaint in Minnesota alleging wrongful termination, breach of contract, and failure to pay commissions in violation of Minnesota state statute.
WBM responded to this filing by moving to transfer venue to New Jersey, pursuant to a forum-selection clause contained in the parties’ most recently executed sales representative contract. The Minnesota court found this clause to be enforceable and transferred the case to New Jersey. Thereafter, TLE moved to amend their complaint to add a claim for violation of the New Jersey Sales Representatives’ Act for WBM’s alleged failure to pay owed commissions. WBM opposed this amendment, which lead to Judge Bongiovanni’s recent opinion.
WBM opposed the motion to amend on the grounds that amending the complaint to add that claim would be futile. Specifically, WBM contended that the payments allegedly due to TLE did not constitute “commissions” as defined under the Act. The term “commission” is defined in the Act as compensation that is paid at a rate “which is expressed as a percentage of the dollar amount of orders or sales or as a specified amount per order or per sale.” WBM argued that, because the compensation allegedly due to TLE was percentage-based compensation tied to profits, not to individual sales, it was thus outside the scope of the Act. WBM cited to the recent case Brownstone Specialty Finance v. Freedom Mort. Corp., 2017 WL 2829607 (D.N.J. June 30, 2017) to support this position.
TLE, by contrast, argued that the alleged payments did qualify as commissions under the Act. TLE then went a step further, arguing that Brownstonewas wrongly decided and misinterpreted the Act. Specifically, TLE pointed out that the language of the Act sweeps wider than simply protecting commissions owed. The Act is, after all, known as the Sales Representatives’ Rights Act, not the Sales Representatives’ Commissions Act. TLE pointed to N.J.S.A. § 2A:61A-2 which states, in pertinent part, “the commissions and other compensation earned” becomes due and payable. N.J.S.A. § 2A:61A-3 then instructs that “[a] principal who violates or fails to comply with the provisions of section 2 of this act shall be liable to the sales representative” for the unpaid compensation as well as exemplary damages and attorney’s fees. TLE argued that, as long as the independent sales representative is compensated by commission at least in part, they can recover all owed compensation as well as exemplary damages.
This argument has not been addressed by the courts and was not addressed in Magistrate Judge Tonianne J. Bongiovanni’s opinion granting TLE leave to amend. While Judge Bongiovanni found in favor of TLE, the judge did not need to reach TLE’s argument that compensation other than commissions are recoverable. Instead, she found that WBM failed to establish that the owed compensation did not constitute commissions due to TLE. Construing the facts in favor of TLE, Judge Bongiovanni found that TLE had set forth a non-futile claim for relief.
Time will tell whether TLE’s argument will be successful. The sales representative lawyers of Smith Eibeler have litigated on behalf of many similarly situated independent sales representatives and follow this and other developments in New Jersey sales representative law very closely. If you are an independent sales representative and believe that you are owed commissions or other compensation from a former business principal, contact the sales representative lawyers to discuss the facts and circumstances of your unpaid commiss