Opinion ID: 2731227
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Heading: Commissions and Statutory Penalties

Text: The Minnesota Payment of Wages Act provides statutory protection for the payment of wages and commissions owed to employees whose employment is terminated by their employers. Minn. Stat. §§ 181.01–.171. Minnesota law requires that “an employer . . . not alter the method of payment, timing of payment, or procedures for payment of commissions earned through the last day of employment . . . .” Minn. Stat. § 181.03 (emphasis added). Any employer “who violates this section is liable . . . for twice the amount in dispute.” Id. Minnesota further provides that “[w]hen any employer employing labor within this state discharges an employee, the wages or commissions actually earned and unpaid at the time of the discharge are immediately due and payable upon demand of the employee.” Minn. Stat. § 181.13 (emphasis added). If the employer fails to pay the wages and commissions owed “within 24 hours after demand, . . . the employer is in default.” Id. For each day the employer is in default, the employee is entitled to another day of compensation, based on his average daily earnings, up to 15 days. Id. We have found that Minn. Stat. § 181.13 “‘is a timing statute, mandating not what an employer must pay a discharged employee, but when an employer must pay a discharged employee.’” Knutson v. Schwan’s Home Serv., Inc., 711 F.3d 911, 917 (8th Cir. 2013) (quoting Caldas v. Affordable Granite & Stone, Inc., 820 N.W.2d 826, 837 (Minn. 2012)). “The employment contract governs whether wages were ‘actually earned and unpaid’ for purposes of Minn. Stat. § 181.13.” Chambers v. Travelers Co., 668 F.3d 559, 566 (8th Cir. 2012) (citing Lee v. Fresensius Med. Care, Inc., 741 N.W.2d 117, 127–28 (Minn. 2007)). Section 181.13 only applies if an employer owes an employee unpaid wages or commissions under the employment contract. Because Minn. Stat. § 181.13 creates a civil penalty, it must be strictly construed. Lee, 741 N.W.2d at 125–26 (interpreting Minn. Stat. § 181.13). -6- Section 181.03, similar to § 181.13, does not determine what an employer owes. The employment contract, not the statute, determines what commissions have been “earned through the last day of employment.” Minn. Stat. § 181.03. Section 181.03 also provides for a penalty by allowing the recovery of double the commissions owed if an employer “alter[s] the method of payment, timing of payment, or procedures for payment of commissions.” See Minn. Stat. § 181.03, sub. 3. Thus, like § 181.13, § 181.03 must be strictly construed. Cf. Lee, 741 N.W.2d at 125–26. Therefore, “[t]o recover under [either] statute, the employee must establish an independent substantive legal right, separate and distinct from [§§ 181.03 and 181.13] to the particular wage claimed.” Caldas, 820 N.W.2d at 837 (interpreting Minn. Stat. § 181.13). The terms of the employment contract determine what wages and commissions are “earned” and owing at the time of termination. Any such earnings may be “subject to conditions specified in the contract.” Lee, 741 N.W.2d at 126. Under the terms of the applicable statutes, therefore, JLLA is only subject to penalties for failure to pay (or for altering the method of payment) if it owed Karlen a commission on the Primebar deal at the time of his termination. See Minn. Stat. §§ 181.03 and 181.13. We conclude that JLLA did not owe Karlen a commission on the Primebar deal at the time of his termination. It is undisputed that the Primebar commission payments were subject to at least two conditions precedent, neither of which had been met at the time Karlen was terminated, and thus no commission had been “earned” or was owing under the employment contract at the time of his termination. First, JLLA’s leasing agents only earn commissions on revenue JLLA actually receives. Karlen agrees that the new compensation program was described to him in a January 27, 2012, “Compensation Change” memo; and the parties do not dispute that this memo was a part of the employment contract between JLLA and Karlen. -7- This memo provided that agents will no longer have a target bonus but will instead be eligible to earn “production based” commissions. Agents are “eligible for a production based incentive which includes commission payments of up to 30% of the leasing revenue you directly earn.” (Emphasis added.) If for some reason JLLA does not receive revenue from its clients, then the agents would not be paid a commission.3 This means that agents must wait to receive commissions (and even to know if they will receive a commission) until sometime after execution of a lease, when revenue is received. JLLA structures its leases so it receives payment from the property owners in two increments: one half of the payment owing immediately after a lease is executed and the other half when the retail tenant opens for business. The time period between when a lease is executed and when revenue is finally received may, at times, be substantial. In this case, the first payment on the Primebar lease did not arrive until May 2012, long after Karlen’s termination. Second, and perhaps more fundamentally, the Primebar lease was not executed until after Karlen was terminated. JLLA argues that any contractual expectation ended when Karlen was terminated.4 We agree that execution of the lease was a critical condition to Karlen earning a commission. The Compensation Change memo expressly states that “Commission payment amounts are dependent upon the type of lease . . . and leasing agents involved in executing the deal.” (Emphasis added.) Prior to termination, Karlen had, at most, an expectation of earning “up to 30%” 3 The Compensation Change memo describes the eligible commissions as being “up to 30% of the leasing revenue you directly earn.” The agreement is not clear whether the 30% is guaranteed on every transaction. We also note that the Compensation Change memo suggests that commission payments would not be paid prior to April 2012. It expressly states: “You will be eligible to receive the commission payments beginning in April, subject to your recourse draw being completely repaid.” 4 JLLA is careful to distinguish between contractual expectations prior to termination and its willingness to pay Karlen based on some other equitable theory. -8- commission should the Primebar lease be executed. This expectation lasted only as long as Karlen was employed with JLLA. Because Karlen had not finalized the Primebar lease prior to his termination, Karlen had no contractual entitlement to a commission at the time of his termination.5 Thus, the failure of one or both of these conditions precedent means that JLLA did not owe Karlen any payment at the time of termination. As a result, JLLA did not breach its contract with Karlen such that statutory late payment penalties were owing pursuant to Minn. Stat. §§ 181.03 and 181.13. Nevertheless, the district court found that JLLA owed Karlen a commission on the Primebar lease, and held that JLLA had improperly attached conditions to those payments thereby changing the method or terms of the payments. It is not entirely clear from the record under what theory the district court concluded that JLLA owed the commission; nor is it clear when exactly the commission was owed.6 But even if JLLA eventually owed Karlen commission payments under a subsequent agreement or under some other equitable theory, we do not believe that Minn. Stat. §§ 181.03 and 181.13 may be interpreted so broadly as to provide penalties for late payment of commissions that were not owed under the employment contract prior to termination. By their terms, these two statutory provisions are limited to providing penalties for the delayed payment of amounts “earned through the last day of employment” and/or 5 We note this might be a different case had Karlen been terminated in bad faith in an attempt to avoid paying a commission. However, at the summary judgment hearing, Karlen conceded he was not terminated in bad faith. 6 JLLA maintains that the Primebar commission payments were not owed under the employment contract, which terminated on January 31, 2012, but were instead paid due to a later agreement made with Karlen following his termination. When JLLA eventually received revenue, JLLA issued checks to Karlen for the commission amounts. It is these payments that the district court held were insufficient, under Minn. Stat. §§ 181.03 and 181.13, due to restrictions that JLLA purportedly placed on cashing the checks. -9- “actually earned and unpaid at the time of discharge.” Minn. Stat. §§ 181.03, 181.13. No such amounts were owed at the time of Karlen’s discharge. As such, any amounts later owed are outside the scope of the statutes. Therefore, we conclude as a matter of law that Karlen was not owed either commissions or penalties based on a breach of contract theory. In his appellate brief, Karlen admits that “[n]o agreement was ever reached between Karlen and Appellant JLL[A] post-termination . . . .” This admission forecloses his ability to proceed on remand under the theory that there was a posttermination agreement that was breached. Karlen also has not appealed the dismissal of his unjust enrichment and promissory estoppel claims. As such, JLLA is entitled to summary judgment.