A St. Louis company paid its salespeople a base salary plus a percentage of profits from their individual sales. Several salespeople sued the company because they thought that the company was not properly paying them their commissions. The trial court dismissed the case, finding that the salespeople did not receive commissions at all and so could not sue for penalties related to nonpayment of commissions.

What happened. National Dealers Warranty is a company in St. Louis that sells extended automobile warranties over the telephone. It employs a number of salespeople to perform this work. They are allowed to negotiate with customers, so prices for warranties vary from sale to sale.

The employees were paid a base salary and then received additional compensation based on “stated profits.” The stated profits were calculated by determining the difference between a warranty’s retail price and the final negotiated price arrived at by the salesperson and customer. The stated profits would be higher if the salesperson managed to sell a warranty at greater than retail price, and lower if the salesman sold it for less than retail. National Dealers occasionally adjusted the method by which it calculated stated profits, but the employees were always paid 10 percent of those stated profits for the warranties they sold.

The employees who brought this class action lawsuit claimed that National Dealers had violated state law—MO Rev. Stat. Sec. 407.911—which defines commissions and sets penalties for employers that violate the law. The employees argued that National Dealers had unjustly withheld an initial $1,000 from each salesperson’s commission and then failed to pay them commissions due upon termination. National Dealers asked the trial court to dismiss the case, which it did. The employees appealed.

What the court said. The question in this case was whether the employees’ compensation was actually a “commission” as defined by Missouri law. The trial court held that it was not.

Section 407.911 defines a commission as “compensation accruing to a sales representative for payment by a principal, the rate of which is expressed as a percentage of the dollar amount of orders or sales, or as a specified amount per order or sale.” The employees argued that their compensation arrangement qualified as a commission under both methods listed in the statute. Because National Dealers had an explicit method of calculating stated profits so that salespeople knew how much to expect as compensation from any given sale, then their additional payment constituted a “specific amount per sale.”

National Dealers countered that a specific method for determining compensation was not the same as a specific amount of compensation. They claimed that the statute only applies to cases in which a salesperson receives a set dollar amount, such as $100 per sale. The Missouri Court of Appeals agreed with this interpretation. In the statute, the word “specified” modifies the word “amount,” which the court took to mean a specific dollar amount or fixed sum per sale. The employees’ compensation varied based on negotiated prices, so it was not a specified amount per order or sale.

The employees then argued that their compensation was a percentage of the dollar amount of orders or sales. National Dealers countered that their compensation was not a percentage of sales, but of profits. The employer noted that the legislature could have included the word “profits” in the statute but chose not to. The Court of Appeals observed that states vary in their definitions of commissions; some include payments that are percentages of profits and some do not. The court had to assume that the legislature deliberately chose to exclude payments based on percentages of profits.

In that light, the only possible conclusion the court could reach was that the employees were not paid commission under Missouri law. The court affirmed the trial court’s dismissal of the case. Schwab v. National Dealers Warranty, Inc., Missouri Court of Appeals, Eastern District, No. ED92373 (9/8/09).

Point to remember: In Missouri, paying a salesperson a percentage of sales is a commission; paying him or her a percentage of profits is not.