Commission Agreements, Finders Fees and New York's Statute of Frauds
Over the last several years, most people that have contacted my office regarding a breach of contract matter (particularly in the work or employment context) came in with the assumption that absent a written agreement, there was no viable claim. And in the same vein, these people assumed that this would certainly apply if they had resigned or quit before getting paid their sales commissions.
While there is more than a grain of truth to these thoughts, it should come as no surprise that many of these assumptions are also erroneous, or flat-out wrong. In point of fact, absent a written agreement (which is often the case, particularly in an at-will employment), New York's courts have distinguished between commissions - which may be recoverable - and a non-employee's (or independent contractor's) finder's fees - which are generally not recoverable.
New York's Labor Laws
As a threshold matter, it bears mention that under New York law, an employer is required to reduce to writing employees' and independent contractors' commission structure. See, e.g., Labor Law § 191–b(1) (a contract between a principal and a sales representative “shall be in writing and shall set forth the method by which the commission is to be computed and paid.”)
It is also important to note, however, that some courts in New York have specifically held that while the Labor Law may require an employer to provide a written contract, it does not follow that a failure to comply with this statute renders enforceable an oral contract that is otherwise void under the Statute of Frauds.
New York's Statute of Frauds
Generally speaking, the Statute of Frauds (N.Y. Gen. Obl. Law 5-701, et seq.) , bars a claimant from recovering damages on a breach of contract claim if the agreement was not reduced to writing, and the agreement could not have been performed within one year.
Applying that rule, New York's courts have held that the "negotiation of business opportunities," or "fee-finders" arrangements fall squarely within the ambit of the Statute of Frauds. As a practical matter, that means that if you don't reduce this agreement to writing, you're out of luck; it won't be enforceable.
An Exception to the Rule
On the other hand, there are cases where New York's courts have specifically held that the Statute of Frauds did not bar a claim for monies owed, like Nichols v. SG Partners, Inc. In that case, the court allowed their claims to proceed because the plaintiffs were not mere "negotiators"; pursuant to the parties' oral agreement the plaintiffs were actively involved, over a prolonged period of time in facilitating the hiring of specific individual employees.
The plaintiffs' role was not, in the words of the court, "transitory or limited." In addition, the court noted that these claimants were not working towards the formation of a new business entity (or the acquisition of an existing entity), in which case the claims would have been barred under the "business opportunities" provision of the Statute of Frauds.
There are quite a few lessons to be learned here - both from the employer's vantage point, as well as from the employee's, or independent contractor's end of things.
First, and foremost, it behooves everyone to make sure that their understanding as to everyone's roles and responsibilities is memorialized in writing. But in the "real world," as we all know, that often doesn't happen. That leads to Point #2, which is ...
Second, just because you failed to reduce your agremeent to a formal writing does not necessarily mean that the employee or independent contractor has no legal recourse.