Unpaid Commissions, Misclassification, And Arbitration

Within the last decade,  more companies have asked employees or contractors to sign agreements that force them to arbitrate any disputes they may have with the company.    Our courts have repeatedly ruled that arbitration clauses in such agreements are enforceable.   So,  for example,  if you believe that you’ve been wrongfully classified as an independent contractor,  or if you claim that you are owed commissions by your former employer but have not been paid those commissions,   you will be required to take those disputes or claims to arbitration if the company asks a court to compel you to do so.

The interesting twist to this scenario occurs when the arbitration clause in particular,  or the employment agreement in general,  provides that the law of a state other than Massachusetts is to govern the agreement.    It is widely assumed by non-attorneys that this means that such a provision in an agreement—known as a “choice of law” provision–is enforceable.   But not so fast,  says our Supreme Judicial Court.       In a 2012 decision known as Melia v. Zenhire, Inc.,   the SJC set forth some specific rules to determine when a choice-of-law provision in an employment or contractor agreement trumps the protections of the Wage Act,  the Massachusetts law that provides significant protections against non-payment of salaries and commissions and the misclassification of employees as independent contractors.    In Melia the court essentially ruled that if (a) the court in the state the law of which governs the dispute rules that its own state’s law is applicable to the dispute;  and (b) if that state’s law is less protective of the contractor/employee’s rights than Massachusetts law,  then the Wage Act,  and not the other state’s law,  will govern the dispute.

In many instances this analysis will result in a determination that the Wage Act,  and not the law chosen in the agreement,  is the law that should govern the dispute.   The Wage Act is more protective of employees and contractors than nearly every other state’s law governing such rights.      However,  that does not necessarily mean that the under these scenarios the arbitration itself would be required to be held in Massachusetts.    Most of these same agreements fix the location for the arbitration,  and these “forum selection clauses” have been held to be enforceable.   So in most instances where there are both choice-of-law and forum selection clauses in an agreement,  the likelihood is that you will be forced to arbitrate in the state identified in the agreement,  but the arbitrator will be required to apply the Wage Act and not the law of the state in which the arbitration is taking place.

This ruling provides substantial benefits for persons who perform services in Massachusetts for employers.      The Wage Act provides for automatic triple damages and attorney’s fees if an employer fails to pay commissions that are “definitely determined” to be due,  or misclassifies a person providing services as an independent contractor when he/she should be an employee.      This explains why so many companies doing business in Massachusetts include these clauses in their agreements.     And this also explains why it is vital that persons facing these “forum selection clauses” immediately consult with an attorney if and when they end up in a dispute concerning their compensation or classification.

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