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OK to withhold commissions from employees who violate fiduciary obligations

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in Compensation and Benefits,Employment Law,Human Resources

The Texas Payday Act allows employees to sue for commissions earned but unpaid after termination.

But that doesn’t mean that employees are always owed such commissions. If they violated their fiduciary duty to their employers by disclosing confidential information to a competitor, it’s legitimate to withhold pay.

Recent case: Andrew Espinoza sold orthopedic products for Central Texas Orthopedic Products. His pay was commission-based, and had signed a noncompete and confidentiality agreement.

He applied for a job with a competitor. During the interview, he apparently gave his potential employer confidential information about Central Texas Orthopedic, including information on clients and sales. He then quit and went to work for the competitor.

When Central Texas Orthopedic withheld Espinoza’s last $12,400 commission check, he sued under the Texas Payday Act.

But the company argued he forfeited the commission when he gave its competitor confidential information. The Court of Appeals of Texas agreed, ruling that “fee forfeiture is appropriate in cases when an employee breaches his fiduciary duty to his employer.” (Central Texas Orthopedic Products v. Espinoza, No. 04-09-00148, Texas Court of Appeals, Fourth District, 2009)

Final note: In situations like this, talk it over with your attorney before withholding employee pay. They may recommend pursuing other remedies against the employee, like breach of contract. It may also be possible to add the new employer to the litigation. It’s also a good idea to have your attorney regularly review your employment, confidentiality and noncompete agreements. 

 

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