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PROFESSIONAL STANDARDS SPOTLIGHT
WHEN COMMISSION IS EARNED
ERNST V. ENGEL: COURT CONSIDERS WHEN COMMISSION IS EARNED
[ SUBMITTED BY JACQUIE KETCHERSID, PROFESSIONAL STANDARDS MANAGER ]
An Iowa court has considered whether a
salesperson was entitled to receive her usual
commission split for transactions that were under
contract when she left the brokerage but had not
yet closed.
Jo Ernst (“Salesperson”) has worked part-time as a real
estate salesperson since 1987. Over the years, she has
affiliated her license with a few different brokerages, as
required by state law. In 1990, she affiliated with The
Craven Agency. In 2007, broker Bruce Engel (“Broker”)
of the Engel Agency (“Brokerage”) purchased The Craven
Agency, and the Salesperson transferred her license to the
Brokerage and continued to work out of that office. There
was no written agreement establishing the terms of the
relationship between the Brokerage and the Salesperson
over the payment of commissions, including the time when
commissions were earned.
For the first two years, the Brokerage paid the Salesperson
according to an orally agreed-upon schedule. Depending on
the Salesperson’s role in the transaction, the Brokerage paid the
Salesperson an agreed-upon percentage of the commission
received by the Brokerage. In July 2009, the Broker told the
Salesperson that he was going to close her location, but she
could commute to the Brokerage’s other office.
The Salesperson declined to commute to the other office,
and made plans to move her license to another brokerage
in her town and began telling her clients about this move.
These communications upset the Broker, and he terminated
the Salesperson’s relationship with the Brokerage. At the
time she departed the Brokerage, the Salesperson had four
transactions under contract with the closings pending.
Following the Salesperson’s departure, all four of the
pending transactions closed. The Broker reduced each of
the commission checks from what the Salesperson had
previously received when a transaction closed. The Broker
sent the Salesperson a letter with each commission check
explaining that the payment had been altered because of
the additional work required by the Broker to complete each
transaction. In total, the Salesperson had her commissions
reduced by $8847.41.
The Salesperson filed a lawsuit against the Broker, arguing
that she was entitled to receive the entire commission
amounts because she had earned her commission once the
parties entered into the purchase contract. The trial court ruled
in favor of the Brokerage, and the Salesperson appealed.
The Court of Appeals of Iowa reversed the lower court. The
trial court had determined that the Salesperson, per the oral
agreement between the Broker and Salesperson, did not
earn her commissions until the transaction closed. Since the
Salesperson was no longer an employee of the Brokerage,
the lower court determined that the Brokerage had no duty
to pay her commissions for any of the transactions. The
court ruled that the Salesperson earned her commissions
prior to her departure from the Brokerage, not when the
transactions closed. Looking at previous cases, other courts
have determined that the commissions are earned once a
binding contract is executed by the parties. Since there was
no contract between the parties requiring the payment of
commissions only on closed transactions and there was no
other evidence establishing that the closing was required for
commission payment, the court found that the Brokerage
owed the Salesperson the entire commission amounts.
Thus, the court reversed the lower court and sent the case
back to the trial court with an order to enter judgment
in favor of the Salesperson for the unpaid commission
amounts. n
Ernst v. Engel, 817 N.W.2d 31 (Iowa Ct. App. 2012).
Source: NAR
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SOUTHERN NEVADA REALTOR ® MARCH 2013 www.LasVegasRealtor.com