Federal Court Addresses Definition Of Commission Under Wage Act

The Massachusetts Wage Act, which requires timely payment of wages, contains language explicitly stating that it applies "to the payment of commissions[.]" But the statute does not include a precise definition of the term "commission." An August 2025 decision out of the United States District Court for the District of Massachusetts serves as a reminder to employers and employees alike that when it comes to commissions, courts will look at the nature of the payment rather than merely the label used by employers when deciding whether a so-called "commission" qualified as a "wage" under the Wage Act.

In Noreke v. Gideon Taylor Consulting, LLC,¹ the United States District Court for the District of Massachusetts was presented with a motion for summary judgment addressing a Wage Act claim brought by an employee who served as a member of a company's senior management team, who worked as the managing director of a specific company division. When the employee accepted the position, he was offered a compensation package that included both a base salary, plus what was referred to as a "commission," based on a "Commission Plan" set by the company's Executive Team.

Per the "Commission Plan" the employee's "commission" would be calculated based on his division's quarterly performance relative to a company-set target. If the divisional performance was less than 50% of the target, the employee was entitled to no payment. Above that threshold, he would be entitled to set payments up to $100,000 if the division earned more than 200% of the target in a quarter. The employee received several quarterly payments under the "Commission Plan," but was terminated after he raised concerns that expenses that should have been allocated to other divisions were misallocated to his division, which improperly reduced the "commission" payments he had received.

The employee filed suit, asserting several claims including one alleging the company failed to pay him in full all "commission" earnings he was due, and therefore violated the Wage Act. The company moved for summary judgment on the Wage Act claim, and the court was faced with addressing whether the "commission" payments constituted "commission" payments protected by the Wage Act. Granting the motion for summary judgment on this claim, the court concluded that despite what the company called these payments to the employee, they were not in fact "commission" payments.²

The court in Noreke explained that, given the significant consequences of a Wage Act violation – particularly criminal penalties – courts are reluctant to extend its reach beyond payments expressly mentioned by the Act. While commissions are mentioned by the Wage Act, profit-sharing arrangements are not. Courts have therefore repeatedly held that payments made as part of profit-sharing agreements are not subject to the Wage Act. In determining whether a payment is a "commission," or instead a "profit-sharing arrangement," the label used by an employer to describe the payment is not the only thing the court will look at. Instead, the court also looks at the "nature and purpose" of the payment.

In this case, although the employer labeled the payments to the employee "commission" payments, which were paid pursuant to a "Commission Plan," the payments were based on a percentage of company profits. The court therefore reasoned that despite their label, these payments were in essence profit-sharing payments, not commission payments. The employee argued that payments tied to divisional profits were "commissions" because they were the byproduct of his performance as managing director – essentially relying on a broad definition of "commissions" as performance-based payments. The court rejected this argument, reasoning that such a broad definition could encompass many profit-sharing arrangements – but it is settled that profit-sharing arrangements are not subject to the Wage Act. Therefore, the court adhered to a narrower view of commissions, concluding that it is a payment's connection to individually-generated sales and revenue that makes it a commission under the Wage Act.

Noreke underscores just how important it is for employers and employees entering into compensation agreements to carefully consider the implications of both the labels used, and the nature and purpose of any agreed-upon payments. Employees seeking the protections of the Wage Act will likely want to ensure that any "commission" in fact is tied to personally-generated sales or revenue. And employers hoping to avoid any potential Wage Act exposure will likely want to ensure that any "profit-sharing" agreement is in fact actually tied to company profits.

Footnotes

1 Noreke v. Gideon Taylor Consulting, LLC, No. 23-CV-11161-DJC, 2025 WL 2370952, at *1 (D. Mass. Aug. 14, 2025).

2 The employee also filed other claims seeking payment of the same "commissions," including a claim for breach of contract, and a claim for breach of the implied covenant of good faith and fair dealing. These other claims were not addressed by the court. It is important to note that even where there may be no viable Wage Act claim, an employee may have other avenues of recovery to pursue what he alleges to be unpaid wages through a different legal theory.

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