Commissions After Termination: Texas Employment Law Guide

You’re a business owner in sales and your top salesperson is terminated for cause. Do you continue paying them commissions after their departure, or do the commissions end with their termination? If you don’t know the answer, you’re in the right place.

Executive Summary

Under Texas employment law, employers may be required to continue paying commissions to a terminated employee when that employee was the procuring cause of the sale. The Texas procuring-cause doctrine can apply unless the parties’ employment agreement contains language that sufficiently displaces the default rule. For businesses that rely on commission-based compensation, carefully drafted employment agreements can help define when commissions are earned and whether commissions remain payable after termination. Understanding these rules can help employers reduce potential disputes and manage employment-related legal risk.

This insight emphasizes the importance of knowing exactly how your commission-based employment agreements are structured and your obligations therein. For businesses reviewing employment agreements or facing a dispute over unpaid commissions, understanding the applicable Texas employment law principles can be an important first step.

Default Rule for the Payment of Commissions

Under Texas law, the default rule is that employers are required to pay commissions on sales procured by their employees irrespective of the employee’s continued employment. This rule stems from the procuring-cause doctrine*.

For employers, this means that terminating an employee does not necessarily eliminate the employer’s obligation to pay commissions. The specific language of the employment agreement can play a critical role in determining whether commissions remain payable after termination.

BoyarMiller’s Employment Litigation practice takes [MV1] a prevention-first approach to employment-related legal issues, including disputes that can arise from employment agreements.

When the Procuring-Cause Doctrine applies

An employee is entitled to ongoing commissions after their employment has been terminated if (1) the employment agreement is an agreement allowing them to earn commissions, (2) there are no terms in the employment agreement that sufficiently displace the procuring-cause doctrine, and (3) the employee was the procuring cause of the sale.

These three considerations are particularly important for employers evaluating whether commissions may remain owed following termination.

1. Types of employment agreements the procuring-cause doctrine applies to:

Relevant employment agreements include those that allow employees to earn commissions based on products or merchandise sold, such as a car salesperson or a medical supplies salesperson, as well as brokerage agreements where brokers earn commissions based on successfully procuring buyers.

Because commission structures can vary significantly from one business to another, employers should review the specific language of their agreements rather than assume that termination automatically ends an employee’s right to commissions.

2. How to displace the procuring-cause doctrine:

There is no magic language necessary to displace the procuring-cause doctrine. Any language in an employment agreement that conflicts with the default rule—that is, that employees are entitled to commissions based on sales they procure—is sufficient.

Examples include (i) requiring continued employment as a prerequisite to receiving commissions, (ii) authorizing the payment of commissions only on sales closed during the employment term, or (iii) conditioning an employee’s entitlement to commissions on something other than them having procured the sale, such as the goods being shipped or payment being received.

The precise terms of a commission agreement matter. Employers seeking to avoid uncertainty should clearly identify when a commission is considered earned, what conditions must be satisfied before payment is due, and what happens to commissions following termination.

3. Determining whether an employee is the procuring cause of the sale:

An employee is the “procuring” cause of a sale if they are the principal and immediate cause. This is a “but for” test. Would the sale have occurred “but for” the employee’s actions? If so, the employee is the procuring cause.

Determining whether an employee was the procuring cause can therefore require a close look at the employee’s role in generating and completing the sale, as well as the specific facts surrounding the transaction.

Tips for Structuring a Commissioned-Based Employment Agreement

First, keep in mind the default rule imposed by the procuring-cause doctrine and the prerequisites to its applicability when drafting relevant employment agreements.

Second, determine whether you want to condition commissions on something other than procuring sales and consider the post-employment obligations you are okay with being bound by, if any. This will help you decide what terms to include in the employment agreements to displace the procuring-cause doctrine. Do you want to be responsible for paying commissions after an employee is terminated? If the answer is no, you should include terms in the employment agreement that avoid that outcome.

For employers, these considerations make commission agreements an important part of broader employment risk management. Reviewing existing agreements before a dispute arises can help identify provisions that may not produce the outcome the business intended.

These tips are intended to help you better understand the extent to which you may be liable under commissioned-based employment agreements and, further, allow you to minimize that exposure. If you do not understand your current obligations under existing commissioned-based employment agreements, if you would like guidance on drafting new ones to avoid the various pitfalls, or if you have any other related questions, our firm is here to help.

Businesses dealing with a potential employment dispute may also benefit from understanding BoyarMiller’s broader Business Litigation practice[MV2] , which handles contractual disputes and other complex business matters.

Conclusion

It is important to be aware of the procuring-cause doctrine and the default rule it imposes, as it may result in you receiving a demand for the payment of ongoing commissions from a terminated employee. The good news is that there are steps you can take to limit your likelihood of receiving those types of demands. BoyarMiller is here to help you better understand what those steps are to help your business minimize risk and achieve its goals.

Understanding how Texas employment law applies to commission-based employment agreements can help employers make informed decisions before, during, and after an employee’s termination.

Frequently Asked Questions

Does an employer have to pay commissions after an employee is terminated in Texas?

Under Texas law, an employer may be required to continue paying commissions after an employee is terminated if the employee was the procuring cause of the sale and the employment agreement does not sufficiently displace the procuring-cause doctrine. The specific terms of the commission-based employment agreement are therefore critical in determining whether post-employment commissions are owed.

About the Authors

Matt Veech, Shareholder, Litigation Group

Matt Veech’s practice is devoted to representing a vast array of clients, from individuals to large corporations, in a variety of employment and business-related disputes. He represents clients in matters relating to enforcement of non-competition and non-solicitation agreements, misappropriation of trade secrets and proprietary information, breach of fiduciary duties and breach of contract, shareholder oppression, and related business torts.

Dillon Breazeale, Associate Litigation Group

Dillon Breazeale is an associate in the firm’s litigation group focusing on commercial, real estate, and employment litigation. Dillon works with private and public companies on issues spanning labor and employment, construction, real estate, and administrative grievances.

*The procuring-cause doctrine is a common law doctrine recently articulated in Perthuis v. Baylor Miraca Genetics Laboratories, LLC, a 2022 Texas Supreme Court decision.