Unless you have a contract promising you a certain commission rate for a particular period of time or for particular accounts, your boss can likely prospectively change the commission structure. This means that if your employer gives you notice of the rate change, all future sales completed after the notice can legally be compensated at the changed rate. However, just because the employer reduces the rate, doesn't mean you've been constructively discharged.
An employer cannot change the rate paid on any sales that were completed before notification of the new rate scale. This would be considered a breach of contract. Just because the rate is reduced, doesn't mean you've been constructively discharged. This "discharge" occurs only when any reasonable person would feel forced out by intolerable conditions. Simply lowering the rate scale probably does not qualify as intolerable conduct, especially if other criteria have not been met.
The first criteria that courts look at when considering a constructive discharge accusation is whether the incident was isolated to that particular individual or whether an entire group was treated equally. Most states require that the conditions regarding reduction in pay be isolated to an individual employee. If a company has to cut back on everyone’s pay, they are not creating an intolerable environment for any single employee, but rather saving the jobs of all of the employees. Additionally, the pay decrease must not be merit based. So, if your commissions were lowered because your overall sales-to-return ratio was too high or you were not effectively meeting your goals, your employer was acting prudently.
The second criteria in most states is that the cut must ultimately contribute to the employee's resignation - in such a way that the employee feels they were forced to quit. In other words, the cut to your commission rate must be so large that you can no longer justify or afford to work for the company. If the cut is small and may require you to simply make adjustments or work an additional part-time job, it is not a large enough cut to justify a constructive discharge claim.
The court also looks at other conditions occurring in the workplace. For instance, was your boss also verbally abusing you? Remember that the legal requirement is intolerable conduct. Examples that the courts have held as intolerable include placing employees on permanent unpaid medical leave, excessive decrease in work hours, excessive increase in work hours, and violence in the workplace. Simply reducing the amount of commission earned is typically not considered valid grounds, given that commission is not actually a core part of the base salary to begin with.
Finally, most states require that employees give their employer notice of the intolerable condition and a chance to fix it. If your employer is entirely unaware that your commission cut is intolerable to you, then you don’t have much of a case that it was intentional. When giving your employer notice, make sure that the notice is in writing and that you keep a copy for yourself as well. Keep the letter respectful and only state facts, not accusations. Remember that being fired from your job will prevent even unemployment benefits.
Another area to consider when looking into a constructive discharge claim is the validity of your contract with the business. For instance, did your contract specify that you would receive your particular commission percentage for a given timeframe? Some employers require employees to sign a new contract each year specifying the new terms. If your contract did not specify a guaranteed timeframe for the commission, your employer has the right to change the commission percentage at any time.
Additionally, it is important to determine whether you are, if fact, an employee of the company or an independent contractor. Many modern sales positions utilize an independent contractor or reverse pyramid scheme model where the primary company only hires contractors and makes no actual employment promises. If this is the structure, then you have absolutely no employment claims at all, because you are not an employee of the company, but rather the company is your client.
Finally, you must review your individual state’s laws regarding employment. States such as Arizona are “right to work states.” In a right to work state, an employer has the right to change employment terms whenever deemed necessary and employees who are dissatisfied are expected to find another job. The only exception in these states is if a binding contract exists, in which case an employee can argue breach of contract and receive their full contractual amount as damages.
If you feel that you have been constructively discharged, you might need an employment law attorney, who can help you understand the employment laws in your state, and help you determine if you have enough evidence to pursue a constructive discharge claim. Contact an employment law attorney in your state for more information.