Employee-At-Will May Receive Commissions Earned During The Course Of Employment Says Fourth Department

• Posted on: Aug 24 2020

Like most states in the country, New York is an “employment at will” state.  This means that if there is no written agreement between the employer and employee governing when the employer can fire the employee, the employer has the right to fire the employee at any time for any reason. Smalley v. Dreyfus Corp., 10 N.Y.3d 55, 58 (2008). The Court of Appeals has “repeatedly refused to recognize exceptions to, or pathways around, these principles.” Id.  Thus, when an employee at will is fired, the employee has no legal recourse even when the termination is arbitrary, unfair or unreasonable.

While the employee-at-will has no recourse with regard to his/her termination, he/she may have recourse to recover compensation that is fixed and earned but not paid prior to termination. This was the issue before the Appellate Division, Fourth Department in Bermel v. Vital Tech Dental Labs, Inc., 2020 N.Y. Slip Op. 04666 (4th Dept. Aug. 20, 2020) (here). 

In Bermel, plaintiff, an employee-at-will, sought, inter alia, payment of commissions that he allegedly earned from sales that occurred during the course of his employment with defendant. Plaintiff claimed that he was owed commission income for past sales, as well as sales “generated by [plaintiff] on a future and ongoing basis including post-termination of [plaintiff’s] employment.” Plaintiff alleged that defendant had promised to pay him those commissions pursuant to an oral employment agreement. Because Plaintiff alleged that he and Defendant had an oral employment agreement, the Court had to consider whether the Statute of Frauds barred the relief that Plaintiff sought.

In New York, the Statute of Frauds is found in General Obligations Law § 5-701 through 5-705. These provisions require a signed writing for certain types of agreements, including, but not limited to: (1) agreements that by their terms are “not to be performed within one year from the making thereof”; (2) the conveyance of real property; (3) contracts for the payment of finder’s fees; (4) agreements for “goods sold at public auction”; (5) contracts to pay compensation for services rendered in negotiating a business opportunity; and (6) modifications to written agreements which state that they cannot be changed orally.

The Statute of Frauds neither applies to an agreement that “appears by its terms to be capable of performance within the year; nor to cases in which the performance of the agreement depends upon a contingency which may or may not happen within the year.” North Shore Bottling Co. v. Schmidt & Sons, 22 N.Y.2d 171, 176 (1968) (citation omitted). Instead, it applies to “those contracts only which by their very terms have absolutely no possibility in fact and law of full performance within one year.” D&N Boening v. Kirsch Beverages, 63 N.Y.2d 449, 454 (1984). See also JNG Constr., Ltd. v. Roussopoulos, 135 A.D.3d 709, 710 (2d Dept. 2016) (quoting D & N Boening, 63 N.Y.2d at 454)).

The Court of Appeals has repeatedly held that the courts should “analyze oral agreements to determine if … there might be any possible means of performance within one year.”  Id. at 455. Thus, wherever an agreement is susceptible of fulfillment within one year, “in whatever manner and however impractical,” the courts should find “the Statute to be inapplicable, a writing unnecessary, and the agreement not barred.” Id.

However, oral agreements that are “terminable within one year only upon a breach by one of the parties” are unenforceable. Id. at 456. The reason: “termination is not performance, but rather the destruction of the contract where there is no provision authorizing either of the parties to terminate as a matter of right.” Id. at 456-57; see also Zupan v. Blumberg, 2 N.Y.2d 547, 552 (1957) (“The possibility of such wrongful termination is not, of course, the same as the possibility of performance within the statutory period.”). By contrast, “where one or both parties have … an explicit option to terminate their agreement within one year, that agreement is, by its own terms, capable of completion within that period and is not governed by the Statute.” Id.

If an alleged agreement is found to fall within the scope of GOL § 5-701(a)(1) (or any other subsection of GOL § 5-701(a)), it is void “unless it or some note or memorandum thereof be in writing, and subscribed by the party to be charged therewith, or by his lawful agent. …” There is sufficient tangible evidence that a contract has been made if, inter alia: (i) there is admissible “electronic communication (including, without limitation, the recording of a telephone call or the tangible written text produced by computer retrieval) … sufficient to indicate that in such communication a contract was made between the parties”; (ii) “[t]he party against whom enforcement is sought admits in its pleading, testimony or otherwise in court that a contract was made”; or (iii) “[t]here is a note, memorandum or other writing sufficient to indicate that a contract has been made, signed by the party against whom enforcement is sought or by its authorized agent or broker.” Id. Email communications can satisfy the “writing” requirement. See Sassoon v. CDx Diagnostics, 172 A.D.3d 617 (1st Dept. May 28, 2019); Naldi v. Grunberg, 80 A.D.3d 1, 13 (1st Dept. 2010).

The “writing” need not be a communication between the parties to the contract. It can be an internal communication by the party against whom enforcement is sought. See Int’l Trading & Sales, Inc. v. Philipp Bros., 99 A.D.2d 983, 984 (1st Dept. 1984) (“If defendant has such a note or memorandum even though it be internal, that could satisfy the Statute of Frauds.”); Scura Partners Sec. LLC v Universal Stainless & Alloy Prods., Inc., No. 653308/11, 2013 WL 1127733, at *6 (Sup. Ct. N.Y. Cty. Mar. 6, 2013) (permitting discovery to satisfy Statute of Frauds because the defendant “may have internal emails and memorandums which would confirm the existence of the agreement, and these documents are ‘peculiarly within the knowledge’ of [the defendant].”).

With these general principles in mind, the Bermel Court considered defendant’s contention that, even assuming arguendo that there was an oral employment agreement between plaintiff and defendant, such an oral agreement was void pursuant to General Obligations Law § 5-701(a).

The Court rejected Defenant’s contention. In doing so, the Court held that “an at-will employment . . . is capable of being performed within one year despite the fact that compensation remains to be calculated beyond the one-year period.” Slip Op. at *1 (quoting Harrison v. Harrison, 57 A.D.3d 1406, 1408 (4th Dept. 2008) (internal quotation marks omitted)); see Hubbell v. T.J. Madden Constr. Co., Inc., 32 A.D3d 1306, 1306 (4th Dept. 2006); American Credit Servs. v. Robinson Chrysler/Plymouth, 206 A.D.2d 918, 919 (4th Dept 1994). As such, the Court held that the motion court did not err in denying Defendant’s motion with respect to Plaintiff’s “claim for payment of commissions fixed and earned during the course of plaintiff’s employment with defendant.” Slip Op. at *1.

However, the Court agreed with Defendant that the motion court erred in denying its motion with respect to Plaintiff’s claim for “‘commissions on sales to any accounts generated by [plaintiff] on a future and ongoing basis including post-termination of [plaintiff’s] employment,’ i.e., the claim for commissions that would accrue subsequent to the termination of plaintiff’s employment.” Id. at *2. The Court noted that “[a]lthough ‘[a]n oral agreement that is terminable at will is capable of performance within one year and, therefore, does not come within the Statute of Frauds . . . [,] General Obligations Law § 5-701 (a) (1) bars enforcement of a promise to pay commissions that extends indefinitely, dependent solely on the acts of a third party and beyond the control of the defendant.’” Id. (quoting Murphy v. CNY Fire Emergency Servs., 225 AD2d 1034, 1035 (4th Dept. 1996) (internal quotation marks omitted)). Thus, concluded the Court, the motion “court erred in denying defendant’s motion with respect to plaintiff’s claim for commissions accruing subsequent to the termination of plaintiff’s employment.…” Id. (citing Zupan v. Blumberg, 2 N.Y.2d 547, 550 (1957); Tamara Brokerage, Inc. v. Andreoli, 24 A.D.3d 536, 537 (2d Dept. 2005); Murphy, 225 A.D.2d at 1035).

Takeaway

The Statute of Frauds applies to void an oral agreement that by its terms cannot be performed within one year. An at-will employment is capable of being performed within one year despite the fact that compensation remains to be calculated beyond the one-year period. When the employment relationship is terminable within one year and the measure of compensation has become fixed and earned during that period, the sole obligation to calculate such compensation does not bring the agreement within the one-year proscription of the Statute of Frauds. 

In Bermel, plaintiff alleged entitlement to commission income for sales that occurred during the course of plaintiff’s employment with defendant, as well as commissions that would accrue subsequent to the termination of plaintiff’s employment. Under prevailing New York law, only those commission that were fixed and earned during plaintiff’s employment were recoverable. As the Court observed, the Statute of Frauds is inapplicable to an employment at-will agreement in which compensation is fixed and earned.