By Judy Greenwald, Crain News Service
CINCINNATI (Feb. 13, 2014) — A sales representative who was guaranteed commissions on any new business for two years after he procured it should receive commissions on the business even after his termination, a divided appeals court has ruled.
Mark Dietrich was hired as an account executive in late 2009 by Sioux Falls-based corrugated cardboard manufacturer Bell Inc., and was promised a commission for two years for new business he acquired, according to the Feb. 10 ruling by the 6th U.S. Circuit Court of Appeals in Cincinnati in Mark Dietrich v. Bell Inc.
Bell terminated Mr. Dietrich in 2011 and stopped paying him commissions. He filed suit against Bell in U.S. District Court in Grand Rapids, Mich., to recover commissions for up to two years on each of the accounts he had procured.
The federal court ruled against Mr. Dietrich, holding that as a “sales procurement” salesperson, he was entitled only to commissions on sales or reorders he personally brought in and therefore was not entitled to post-termination commissions.
New business key to reversal on appeal
However, a three-judge panel of the appeals court disagreed in a 2-1 ruling.
It held that Mr. Dietrich was not a “sales procurement” salesperson but a “customer procurement” salesperson. By paying Mr. Dietrich commissions for two years, the company provided him with the incentive “to procure new business contracts and did not incentivize him to sell anything to customers who had not been with Bell more than two years,” the ruling stated.
As a “customer procurement” salesman, Mr. Dietrich was entitled to be paid on all sales generated by a customer he brought in, not just those sales he personally procured, according to the ruling.
The appeals court then turned to the question of whether Mr. Dietrich was entitled to commissions after his termination—and the majority determined he was.
“The contract says nothing regarding termination; it provides no express answer to how the parties intended to terminate their relationship,” the court said.
The contract “promised Mr. Dietrich two years of commissions. If Bell wanted to limit that to the longer of two years or the time of termination, it could have done so in the agreement,” said the court in reversing the lower court ruling and remanding the case for further proceedings.
This report appeared in Crain's Business Insurance magazine, a Chicago-based sister publication of Tire Business.