At-Will Employees Are Not Entitled to Post-Termination Commissions

• Posted on: Jun 29 2016

Like most states in the country, New York is considered to be an “employment at will” state.  This means that if there is no written agreement between the employer and employee (such as, a collective bargaining agreement) governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason.  When this happens, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable.

There are a few exceptions to an “employment-at-will” relationship.  For example, employers cannot discharge an employee in violation of any law that prohibits discrimination.  Additionally, an employer cannot discharge an employee: in violation of the company’s employee handbook; in retaliation for whistleblowing a violation of law to a supervisor or to a public agency; for participation, on his/her own time, in lawful political or recreational activities; in retaliation for filing a Workers’ Compensation or Disability Benefits claim or testifying before the Workers’ Compensation Board; and because of the employee’s absence from work to fulfill a jury duty obligation.  Under any of the foregoing circumstances, an at-will employee may sue his/her employer for damages and/or reinstatement for wrongful termination.

What happens, however, when an employee, who had an employment agreement that expired but continues to work for the company as an at-will employee until fired, seeks post-termination compensation? Can an employee under these circumstances sue his/her employer for such compensation? On June 2, 2016, the Appellate Division, First Department said no.

In Holahan v. 488 Performance Group, Inc., 2016 NY Slip Op. 04311, the First Department held that an at-will employee was not entitled to post-termination commissions, even though those commissions would have been paid under the expired contract.

Colleen Holahan (“Holahan”) worked for the defendant pursuant to an employment agreement until 2007, when the agreement expired.  Although the agreement was not extended in writing, Holahan continued to work for the defendant as an at-will employee until her employment was terminated in 2013.

Holahan claimed that she earned commissions that the defendant refused to pay. She brought suit, alleging, among other things, breach of contract and unjust enrichment related to the failure to pay the commissions.

The defendant moved to dismiss the complaint, which the Supreme Court, New York County, granted on April 22, 2015.  Holahan appealed. The First Department unanimously affirmed the dismissal.

The Court held that, “as a matter of law,” Holahan’s breach of contract claim was properly dismissed because her employment agreement with the defendant had expired in 2007 without, as alleged in her complaint, extension:

Plaintiff’s breach of contract claim, which alleged that the corporate defendant breached the parties’ employment agreement by failing to pay her certain compensation and benefits upon the termination of her employment in 2013, was correctly dismissed. The employment agreement expired in December 2007, and it unambiguously provided that any extension of the agreement needed to be in writing. Because there was no writing extending the agreement, her breach of contract claim fails as a matter of law. (Goldman v White Plains Ctr. for Nursing Care, LLC, 11 NY3d 173, 178 [2008]).

The Court also held, “as a matter of law,” that since Holahan had been an at-will employee following the expiration of her employment agreement, she was not entitled to any post-termination commissions:

Plaintiff’s unjust enrichment claim, which seeks post-termination commissions, also fails as a matter of law. Upon the expiration of her employment agreement, plaintiff became an “at-will” employee, and such employees are not entitled to post-termination commissions. (Mackie v La Salle Indus., 92 AD2d 821, 822 [1st Dept 1983].)

Defining the Relationship Is Important

Holahan stands as a reminder to employers and employees that they should define the terms of their employment relationship in writing (i.e., in documents such as employment applications, employee handbooks, and office policy and procedure manuals).  This is especially important since the law generally presumes that an employee is employed at will unless he/she can prove otherwise, usually through written documents relating to the employment or through oral statements made by the employer.

Freiberger Haber LLP counsels both individuals and employers regarding their legal rights related to employment termination. In this regard, the firm evaluates the circumstances surrounding an employee’s termination to determine if the discharge was lawful.  The firm also helps employers minimize the possibility of being involved in a wrongful termination lawsuit, by among other things, reviewing and revising employee handbooks and company policies and procedures, as well as reviewing documents concerning the reasons for employee discharge.

Tagged with: Business Law, Employment Law, Whistleblower Representation