Profit-Sharing Agreement Not Covered By Payment Of Wages Act

A former employee sued, claiming that failing to pay amounts owed under a profit-sharing agreement violated the Massachusetts payment of wages law, which provides for mandatory triple damages. The court dismissed the case. The employee argued that the profit-sharing agreement was tied to revenues and thus constituted a commission subject to the law. The court rejected that argument because the plan expressly entitled the employee to a share of profits, not a percentage of revenues he personally generated. That is not a commission protected by the Wage Act.

WHY THIS IS IMPORTANT…Unless a payment plan entitles an employee to a percentage of revenue generated by the employee, it is not a commission. If it is not wages, a commission, or a bonus that is locked and payable, it is not covered by the Payment of Wages Act. Here, because it was based on profits, it was outside the law.