Commissions Need Not be Paid Absent a Written Contract

On April 15, 2014, Justice Schweitzer of the New York County Commercial Division issued a decision in Josephberg v. Crede Capital Group, LLC, 2014 NY Slip Op. 31018(U), granting a motion to dismiss a complaint seeking unpaid commissions on Statute of Frauds grounds.

In Josephberg, the plaintiff alleged that he was employed as a commissioned salesman and that he was entitled to 15% of the profits generated by his employer from any transactions he initiated. However, there was no written agreement between the parties. The plaintiff further alleged that, although he was paid his commission on the profits from the first $35 million of business he originated, his employers refused to pay his commission on the next $50 million of business and instead terminated his employment. The defendant moved to dismiss the breach of contract claim, alleging that the Statute of Frauds barred the claim.

The court first noted that GOL 5-701(a)(1), the "one-year" provision of the Statute of Frauds, did not apply to at-will employment contracts.

However, GOL 5-701(a)(10) requires that a contract be in writing if it "is a contract to pay compensation for services rendered in negotiating . . . a business opportunity . . . . 'Negotiating' includes procuring an introduction to a party to the transaction or assisting in the negotiation or consummation of the transaction." The court found that "business opportunity" is a term that is liberally construed, and that the provision applies to an "intermediary" who provides "know-how or know-who" in bringing about a transaction. The court thus held that:

it is clear that [the defendant] employed [the plaintiff] for his know-who, and to procure an introduction to a party to the transaction, which was unquestionably a business opportunity. This falls squarely within the plain meaning of the statute, requiring any contract to be enforceable between [the defendant] and [the plaintiff] to be in writing and subscribed by an agent of [the defendant].

The principal lesson to be taken from this decision is for employment attorneys, who should be aware that, without a written contract, commissioned employees can be deprived of commissions they have been promised.