An insurance agency recruited a producer, hired him, suspended him, fired him, and did not pay him. He took them to court.
The agency operated in multiple states; this producer was in Massachusetts. Seeking to “establish a presence” there, the agency founder and his executive vice-president (EVP) recruited him in the spring of 2021. They conducted all interviews over Zoom. In May, they sent him a letter offering him the position of vice-president reporting to the EVP. It also said that he was “eligible to receive a draw against commissions from May 2021 through December 2021 in [sic] amount of $105,000 …” Notably, it did not address the question of whether the agency could recover the amount of the draw if he failed to earn the commissions.
He started work in mid-May and began soliciting accounts in the Boston area. The agency paid him $6,500 bi-weekly. His paystubs showed that he was classified as “salaried.” Massachusetts income tax was withheld from his pay. The EVP provided him with business cards showing the agency’s logo and listing an office location in Boston (it was actually his home.)
The judge’s opinion did not state how or why the relationship soured. However, things went bad quickly. In mid-September, the EVP informed him that he and the founder had decided to suspend payment of his base wages. Instead, the EVP said they would “reimburse his back wages and resume payment of his wages prospectively once he obtained broker of record letters or booked policies with clients that had annual commissions of $160,000.”
With this understanding, the producer continued working without pay. In late November, his employment was terminated. The agency did not pay him for the two months he worked without pay or for his unused vacation time. He sued the agency and the two individuals for the amount of his unpaid wages and for breach of contract. The judge’s opinion did not state the total amount of damages he sought. At $6,500 biweekly, his unpaid wages were at least $26,000, and he may have sought additional damages for breaching the contract.
The agency moved for the court to dismiss the case, saying that he had failed to state a legitimate claim. However, in October 2022, the judge ruled against them.
The producer had sued under the Massachusetts Wage Act. The agency had argued that a draw on commission was not a payment of wages. They also claimed that they did not assume significant management responsibilities over him. The judge found otherwise; she cited a prior case showing that commission draw was a wage payment under the law. She also noted that the founder and EVP negotiated with him, set the conditions of employment, determined the amount of his salary, and suspended salary payments. Therefore, the wage act applied.
Moreover, she ruled that the agency was subject to the minimum wage law because the producer’s home “could be considered an extension of his ‘employer’s place of business.’” Lastly, she noted that neither side disputed that an employment agreement existed and therefore the breach of contract claim was valid.
There is no further record of proceedings in this case. The two sides likely negotiated an out-of-court settlement.
The opinion indicates that this agency was new to Massachusetts. The founder and EVP may have been unfamiliar with the laws in that state. Their course of action may have been permissible in the states they already operated in. If so, they may have mistakenly assumed that it would not be a problem in this state. Another mistake was not specifying in the offer letter the consequences to the producer should he accept a draw but not earn the commissions. A clear statement in that letter that draw payments might stop may have stopped this litigation before it began.
Agencies must become familiar with the employment laws in every jurisdiction in which they operate, and they should clearly communicate all contingencies to employees in advance. This agency’s mistakes probably ended up costing it.
