PROTECTING YOUR COMMISSIONS

A New York Employee's Guide to Fighting Unlawful Clawbacks and Forfeiture Provisions in Sales Incentive Plans

Introduction: The Common Scenario

You worked hard. You closed deals. You brought in revenue for your employer. And now, upon your termination, your employer is refusing to pay you the commissions you earned—or worse, is demanding that you repay money already paid to you, claiming it was an "advance" or "draw" that must be "clawed back."

This scenario plays out countless times across New York. Employers draft Sales Incentive Plans ("SIPs") or commission agreements with complex provisions designed to give them maximum flexibility to avoid paying commissions—particularly to terminated employees. They use terms like "advances," "draws," "clawbacks," and "earned commissions" in ways that may sound legitimate but often violate New York Labor Law.

The good news: New York has some of the strongest wage protection laws in the country, and courts have consistently held that employers cannot structure commission plans to deprive employees of compensation they have rightfully earned. This guide will explain your rights and provide you with the legal ammunition to fight back.

I. Understanding When Commissions Are "Earned" Under New York Law

The threshold question in any commission dispute is: when does a commission become "earned"? This matters because once a commission is earned, it is legally considered "wages" under New York Labor Law and is entitled to all the protections afforded to wages—including strict limitations on deductions and forfeiture.

A. The Statutory Framework

Under New York Labor Law § 191, commission salespeople must be paid their earned commissions at least once per month, no later than the last day of the month following the month in which they are earned. The statute requires that employers and commission salespeople have a written agreement that specifies how commissions are calculated, when they are earned, and what happens upon termination.

The New York Department of Labor's official guidance states: "All commissions earned by a commission salesperson are legally considered wages and must be paid to the salesperson even if the employment relationship with the employer has ended." This is the foundational principle: once earned, commissions cannot be forfeited.

B. What If the Agreement Is Silent or Ambiguous?

If the commission agreement does not clearly specify when commissions are earned, or if the provision is ambiguous, New York law provides default rules that favor the employee:

1. Past Dealings: Courts will first look at how the parties have historically treated commissions. If the employer has consistently paid commissions upon closing a sale, that practice becomes the standard.

2. Ready, Willing, and Able Standard: If there are no past dealings, the default rule is that a commission is earned when the salesperson produces a person "ready, willing, and able to enter into a contract upon the employer's terms."

3. Contra Proferentem: Any ambiguity in a commission agreement is construed against the drafter—which is almost always the employer. See Arbeeny v. Kennedy Exec. Search, Inc., 71 A.D.3d 177, 180 (1st Dep't 2010).

II. Attack #1: The Regulatory Compliance Argument

Your first line of attack is to determine whether your employer's "advance" or "draw" arrangement complies with New York's strict regulatory requirements. If it doesn't, the employer cannot claw back the money through wage deductions—period.

A. Labor Law § 193: The Anti-Deduction Statute

New York Labor Law § 193 strictly limits the deductions an employer may take from an employee's wages. The statute begins with a broad prohibition: "No employer shall make any deduction from the wages of an employee"—and then lists narrow exceptions.

One exception, found in subdivision 1(d), permits deductions for "repayment of advances of salary or wages made by the employer to the employee." However—and this is critical—such deductions are only permitted when they are "made in accordance with regulations promulgated by the commissioner."

This is not a suggestion. It is a mandatory condition. If the employer's advance arrangement does not comply with the commissioner's regulations, it is not a lawful "advance" under § 193, and the employer cannot recoup it through wage deductions.

B. The Implementing Regulations: 12 NYCRR § 195-5.2

The regulations implementing § 193(1)(d) are found at 12 NYCRR § 195-5.2. They impose mandatory procedural requirements that most employers fail to follow. Here is what the regulations require:

Requirement	Regulatory Citation	Summary of Regulatory Requirement
Definition of an Advance	§ 195-5.2 (introductory paragraph)	An “advance” is money provided by an employer to an employee in anticipation of future wages. Any payment that includes interest, fees, penalties, or repayment in excess of the exact amount advanced is not an advance and cannot be recovered through wage deductions.
Timing and Duration Agreement	§ 195-5.2(a)	The employer and employee must agree in writing, before the advance is given, to the timing and duration of repayment. No additional advances may be issued or deducted until any prior advance is fully repaid. Any money provided outside these limits is not recoverable through wage deductions.
Frequency of Deductions	§ 195-5.2(b)	Repayment deductions may occur no more frequently than each regular wage payment, and only in compliance with all requirements of this Part.
Method of Recovery	§ 195-5.2(c)	Advances may be recovered either through payroll deductions or through separate transactions, but in either case the employer must comply with the procedural safeguards set forth in subdivisions (a) and (d) through (i).
Limits on Periodic Amount	§ 195-5.2(d)	The amount deducted per pay period must be determined by the written authorization. If employment ends before repayment is complete, the employer may recover the remaining balance from the final wage payment only if the written authorization permits it.
Written Authorization	§ 195-5.2(e)	Before the advance is given, the employee must provide written authorization specifying: the amount advanced; the total amount to be repaid; the per-pay-period deduction amounts; the deduction dates; and notice that the employee may contest any deduction not made in accordance with the authorization. Authorization may only be revoked before the advance is issued.
Dispute Resolution Procedure	§ 195-5.2(f)	The employer must implement and provide written notice of a procedure allowing the employee to dispute the amount and frequency of deductions that are inconsistent with the written authorization. The employee must be able to submit written objections, and the employer must respond in writing, explaining its position.
Suspension During Dispute	§ 195-5.2(g)	If an employee invokes the dispute procedure, the employer must suspend deductions until it responds and makes any necessary adjustments. Any repayment delay caused by the dispute extends the authorized recovery period.
Presumption of Impermissibility	§ 195-5.2(h)	An employer’s failure to provide the required dispute process creates a presumption that the contested wage deduction was impermissible.
Non-Compliant Payments	§ 195-5.2(i)	Any provision of money that does not comply with Labor Law § 193 and this Part is not considered an “advance” and may not be recovered through wage deductions.
Other Remedies Preserved	§ 195-5.2(j)	The regulation does not limit the rights of either party to seek relief in another forum, including the Department of Labor.

The consequence of non-compliance is absolute: if the employer's SIP or commission agreement does not include written notice of dispute procedures as required by the regulations, the arrangement simply

does not qualify as an "advance" under New York law. The employer cannot claw it back through wage deductions, and any attempt to do so violates Labor Law § 193.

C. Practical Application: Review Your SIP

Pull out your Sales Incentive Plan or commission agreement and ask yourself these questions:

• Does it include a written notice that you have the right to contest any deduction?

• Does it describe a dispute procedure by which you can challenge the amount or frequency of deductions?

• Were you given written notice of this dispute procedure when you received any advance?

  
  

If the answer to any of these questions is "no," your employer's clawback provision is likely unenforceable as a matter of law.

III. Attack # 2: Substantive Arguments Against Illusory and Unconscionable Provisions

Even if your employer's SIP technically complies with the regulatory requirements (which is rare), you may still have strong arguments that the substantive provisions defining when commissions are "earned" are unenforceable. New York courts have developed several doctrines to protect employees from commission arrangements that are illusory, unconscionable, or structured to permit employer manipulation.

A. New York's Strong Policy Against Forfeiture of Earned Commissions

New York has a "longstanding and strong public policy against the forfeiture of earned wages." This principle extends fully to commissions. As the First Department held in Arbeeny v. Kennedy Executive Search, Inc., 71 A.D.3d 177, 180 (1st Dep't 2010): "Once a commission is earned, it cannot be forfeited. There is a long-standing policy against the forfeiture of earned wages, and this applies to earned, uncollected commissions as well."

This policy has teeth. Courts will scrutinize commission agreements to ensure that employers are not using technical definitions of "earned" to deprive employees of compensation for work they have already performed.

B. The Prevention Doctrine: Employers Cannot Benefit from Their Own Control

The prevention doctrine is your most powerful weapon when challenging commission agreements that condition payment on events within the employer's control. The doctrine provides that a party may not rely on the failure of a condition precedent (a required step or event that must happen before payment is owed) when that party's own conduct caused the failure.

As the Southern District of New York explained in Lomaglio Associates Inc. v. LBK Marketing Corp., 892 F. Supp. 89, 92 (S.D.N.Y. 1995): "A party may not insist upon performance of a condition precedent when its non-performance has been caused by the party itself. Under such circumstances, the prevention doctrine will operate to excuse the condition precedent which was wrongfully prevented from occurring, thereby rendering the contract enforceable."

The Wakefield Case: A Landmark Decision

The Second Circuit's decision in Wakefield v. Northern Telecom, Inc., 769 F.2d 109 (2d Cir. 1985), is essential reading for any commission dispute. The court held that an employer cannot structure a commission plan to give itself "unfettered rights to avoid payment of earned commissions." The court explained the policy rationale with precision: "[Such an arrangement] creates incentives counterproductive to the purpose of the contract itself—in that the better the performance by the employee, the greater the temptation to terminate."

This is exactly right. If an employer can avoid paying commissions simply by terminating the employee before some employer-controlled condition is satisfied, the employer has every incentive to terminate its most successful salespeople. The law does not permit such perverse arrangements.

Applying the Prevention Doctrine to Your Situation

Many SIPs condition commissions on events that sound legitimate but are actually within the employer's unilateral control. Common examples include:

• Internal system activation: Some commission plans tie payment to internal administrative steps within the company’s own systems. Because those steps are entirely within the employer’s control, an employer may not rely on the failure of such a condition if it delays or withholds the internal action to avoid paying commissions.

• Management approval: If commissions require "approval" by management, the employer can simply withhold approval.

• Installation or implementation milestones: If commissions depend on the employer completing installation or implementation work, the employer can delay that work beyond a terminated employee's eligibility period.

• Internal system entries: If commissions depend on data being entered into Salesforce, the company's CRM, or another internal system, the employer controls when—or whether—that entry occurs.

  
  

In each of these cases, the employer has structured the commission plan so that it alone decides whether the condition for payment is satisfied. Under the prevention doctrine, if the employer delays or fails to satisfy such a condition—particularly after terminating the employee—the condition may be excused, and the commission becomes payable.

C. The Implied Covenant of Good Faith and Fair Dealing

Every contract in New York includes an implied covenant of good faith and fair dealing. This covenant "embraces a pledge that neither party shall do anything which will have the effect of destroying or injuring the right of the other party to receive the fruits of the contract." Dalton v. Educational Testing Service, 87 N.Y.2d 384, 389 (1995).

Critically, when a contract grants one party discretion, that party is bound by the implied covenant "not to act arbitrarily or irrationally in exercising that discretion." Id. This principle applies directly to commission agreements where the employer has discretion over when conditions are satisfied.

If your employer exercises its discretion in a way that deprives you of commissions you otherwise would have earned—for example, by delaying a system designation until after your eligibility period expires—that exercise of discretion may violate the implied covenant of good faith.

D. Illusory Promises: When the Employer's Obligation Is Meaningless

A promise is "illusory" when it does not actually bind the promisor to do anything—when the promisor retains unfettered discretion to perform or not perform. An illusory promise provides no consideration and cannot support an enforceable contract.

Commission agreements can be illusory when they give the employer complete control over whether the conditions for payment are ever satisfied. Consider a SIP that defines commissions as "earned" only when four conditions are met:

1. The customer executes an agreement (customer action);

2. The customer pays in full (customer action);

3. No refund or credit is issued (customer action); and

4. The account is designated as "live" in the employer's system (employer action).

   
   

Three of these conditions depend on third-party (customer) actions. The fourth depends entirely on the employer. If the employer can simply decline to designate the account as "live"—or delay that designation past a terminated employee's eligibility window—then the employer has unfettered control over whether commissions are ever "earned." This renders the commission promise illusory.

IV. Remedies: What Can You Recover?

If your employer has violated New York Labor Law by unlawfully withholding or clawing back commissions, you may be entitled to significant remedies:

A. Labor Law § 198: Liquidated Damages

Under Labor Law § 198, if an employer fails to pay wages (including commissions), the employee can recover the unpaid wages plus liquidated damages equal to 100% of the unpaid amount. This effectively doubles your recovery. The statute also provides for recovery of reasonable attorney's fees and costs.

B. Interest

You may be entitled to prejudgment interest on unpaid wages, calculated from the date the wages were due.

C. Attorney's Fees

Labor Law § 198 provides that prevailing employees shall recover "all reasonable attorney's fees." This fee-shifting provision makes it economically viable to pursue even moderate commission claims and gives employers a strong incentive to settle.

VI. Practical Steps: Protecting Your Rights

If you are a commission-based employee facing a clawback or forfeiture demand, here is what you should do:

1. Preserve all documents. Gather your SIP, commission statements, offer letter, employment agreement, and any communications regarding your commissions. Do this immediately—before you lose access to company systems.

2. Review the SIP for regulatory compliance. Does it include written notice of your right to contest deductions? Does it describe a dispute procedure? If not, the "advance" may not be recoverable as a matter of law.

3. Identify employer-controlled conditions. Look for conditions that depend on the employer's actions rather than customer actions. These may be vulnerable to prevention doctrine and good faith arguments.

4. Calculate your exposure. Identify all deals you closed, their commission values, and their status. Which commissions has the employer paid? Which are being withheld? Which are subject to clawback demands?

5. Send a written demand. A well-crafted demand letter citing the specific Labor Law violations and applicable case law often prompts settlement. Employers know that liquidated damages and attorney's fees can double or triple their exposure.

6. Consult an employment attorney. Commission disputes involve complex intersections of statutory and common law. An attorney experienced in New York wage-and-hour law can evaluate your claims and advise on the best path forward.

   
   

VII. Conclusion

Employers often assume that employees will simply accept whatever the SIP says—that complex definitions of "earned," "advance," and "clawback" will intimidate employees into forfeiting compensation they rightfully deserve. But New York law provides robust protections for commission-based employees.

If your employer's clawback provision fails to comply with 12 NYCRR § 195-5.2, it is not enforceable. If the SIP conditions your commissions on events within the employer's unilateral control, the prevention doctrine and implied covenant of good faith may render those conditions unenforceable. And New York's strong policy against forfeiture of earned wages means that courts will scrutinize employer-friendly commission provisions with a skeptical eye.

You earned your commissions. The law is on your side. Don't let a one-sided SIP take them away.

FAQ

When are commissions considered “earned” under New York law?

In New York, commissions are treated as wages once they are “earned,” meaning the employee has satisfied the requirements in a written commission agreement. If the agreement is unclear or silent, courts often look to the parties’ past practice and default rules that generally favor paying the salesperson once they have produced a deal on the employer’s terms.

Can an employer refuse to pay commissions because I was terminated?

Often, no. New York law strongly disfavors forfeiture of earned wages. If you did the work required to earn the commission, an employer generally cannot avoid payment simply by ending the employment relationship, especially if the unpaid commission is tied to employer-controlled steps or arbitrary timing.

Are commission “clawbacks,” “advances,” and “draws” always enforceable?

No. In New York, an employer’s ability to recover money from wages is tightly restricted. “Advance” and “draw” arrangements that allow deductions or repayment must comply with detailed rules, and many employer plans fail to meet those requirements. When the required safeguards are missing, attempts to recoup money through deductions may be unlawful.

What is the prevention doctrine, and why does it matter for commission disputes?

The prevention doctrine is a contract rule that prevents a party from benefiting from blocking a condition that triggers payment. If a commission plan makes payment contingent on a step within the employer’s control, and the employer delays or prevents that step to avoid paying, a court may treat the condition as satisfied and require payment.

What can I recover if my employer unlawfully withholds commissions in New York?

Potential remedies may include the unpaid commissions, liquidated damages (often equal to the unpaid amount), interest, and attorney’s fees under New York Labor Law, depending on the facts and the claim. The availability of these remedies frequently changes the settlement leverage in commission disputes.

Add these as an “FAQ” section near the end of the post (above your disclaimer is usually a good spot). Make sure the FAQs are visible on the page if you want Google to treat the FAQ structured data as valid.

By: Reza Yassi

Contact Us- 646-992-2138

 -----------------------------------------------------------------------------------------------------------

DISCLAIMER

This guide is provided for informational purposes only and does not constitute legal advice. The application of these legal principles depends on the specific facts of your situation. If you are facing a commission dispute, you should consult with a qualified employment attorney licensed in New York. Nothing in this guide creates an attorney-client relationship.