by Michael P. Maslanka

I am sometimes asked what lawyers really do for a living? My answer—to hope for the best, plan for the worst. The worst was definitely not planned for in a recent case from Harris County.

Two-Page Employment Agreement

Thomas Patlovany started work for Five Star Electric Motors in August 2012. The company sold products for Siemens. A customer paid Siemens for the product and, in turn, Siemens paid part of the sales price to Five Star. From that amount, Five Star paid a commission to the salesperson responsible for the sale. A virtuous circle of commerce.

Here is a summary of the agreement between Five Star and Patlovany:

You are an at-will employee. Compensation for you will be a base salary of $160,000 per year. Total annual compensation will be the greater of your base salary at $160,000 or 35% of the net profit received from your accounts and project sales.

That’s it on compensation. See a problem?

What Could Possibly Go Wrong?

Patlovany resigned in December 2018. On his resignation date, he had made sales, but the profit wasn’t yet received until later. And does the agreement contemplate this contingency? Not a word—crickets!

Perhaps sensing its predicament, Five Star wrote to Patlovany that by resigning he “forfeited” these commissions. The lawsuit followed shortly thereafter.

Five Star’s lawyer argued to the jury, “All Mr. Patlovany had to do to get the money was stay employed by the company, he would have gotten every dime.” Fair enough, but does it say that in the agreement? No. With no term, the law says the employee gets the commission if they are the procuring cause of the sale, to wit per the court:

A salesperson . . . who contracts for a commission becomes entitled to payment of the commission when through his efforts he produces a buyer who is ready, willing and able to buy that which is being sold. . . . This is a rule of fairness.

It was uncontested that Patlovany was the procuring cause of these contracts.

The jury told Five Star to pay up. The appeals court in Houston agreed. Five Star Electric Motors, Inc. v. Patlovany, (Tex. App--Houston, 1st District, 2024).

Bottom Line

The appeals court remarked that it’s easy enough for an employer to avoid all this trouble: “A contract could deny the payment of commissions for procured sales absent continued employment; authorize commissions only on sales that close during the employment . . . relationship; condition commissions on the money from the sale being received within a particular time frame; [or] provide a time limit after termination beyond which commissions from procured sales will not be paid.” I actually like this last option. The worst reason to do something is because you can. You want to be fair to salespersons and incentivize them to do a good job. But whatever you do, don’t follow the Five Star example.

Michael P. Maslanka is an assistant professor at the UNT-Dallas College of Law. He practiced law from 1981 until he joined the faculty in July 2015. He was Chair of the Labor and Employment section of a large Dallas firm and was the managing partner of the Dallas office of two national law firms prior to July 2015. You can reach him at michael.maslanka@untdallas.edu.