Utah Supreme Court Reminds Employers of Importance of Clearly Written Compensation Agreements

On October 29, 2019, the Utah Supreme Court issued a decision of great importance for Utah employers that pay commissions. Vander Veur v. Groove Entertainment Technologies (Utah 2019). The central issue in Vander Veur was “whether the implied covenant of good faith and fair dealing prohibits an employer from terminating an [at-will] employee for the purpose of avoiding commissions.”

Mr. Vander Veur, a sales representative for Groove Entertainment Technologies (“Groove”), had entered into a compensation agreement with Groove, “which provided that it would remain in effect as long as Mr. Vander Veur [was] employed by Groove.” The agreement also provided that Mr. Vander Veur would be paid a commission for each “qualifying sale” as defined by the agreement. To constitute a qualifying sale under the agreement, installation had to be complete. Before his termination, Mr. Vander Veur had secured six sales contracts, although none of them had proceeded to installation by the time Groove terminated him. Mr. Vander Veur alleged that Groove terminated him to avoid paying him commissions and that such action violated the implied covenant of good faith and fair dealing.

The district court dismissed Mr. Vander Veur’s claims, and the Utah Court of Appeals reversed that dismissal in Vander Veur v. Groove Entertainment Technologies (Utah 2018).

Most recently, the Utah Supreme Court reversed the Court of Appeals’ decision for three reasons. First, it found that the contract was clear, and the parties had agreed to the terms. Second, the Court concluded that the parties would not have agreed to pay commissions post-termination; and in fact, Groove never pays out commissions post-termination. Third, the Court found that Mr. Vander Veur could not have had a justified expectation in receiving post-termination commissions because of the plain text of the compensation agreement. In short, the Utah Supreme Court concluded that the employer did not breach the implied covenant of good faith and fair dealing by terminating an at-will employee before the commissions became due under the compensation agreement.

Groove’s compensation agreement was the deciding factor in this case, so one take-way for employers is to use clear, written compensation agreements that expressly dictate when commissions are earned. Employers outside of Utah should also become familiar with their state statutes. In Utah, the agreement was upheld; there are states where this would not be the case. Contact an Employers Council attorney for help with your written compensation agreements.