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Ernst v. Engel: Court Considers When Commission Is Earned

An Iowa court has considered whether a salesperson was entitled to receive her usual commission split for transactions that were under contract when she left the brokerage but had not yet closed.

Jo Ernst (“Salesperson”) has worked part-time as a real estate salesperson since 1987.  Over the years, she has affiliated her license with a few different brokerages, as required by state law.  In 1990, she affiliated with The Craven Agency.  In 2007, broker Bruce Engel (“Broker”) of the Engel Agency (“Brokerage”) purchased the The Craven Agency, and the Salesperson transferred her license to the Brokerage and continued to work out of that office.  There was no written agreement establishing the terms of the relationship between the Brokerage and the Salesperson over the payment of commissions, including the time when commissions were earned.

For the first two years, the Brokerage paid the Salesperson according to an orally agreed-upon schedule.  Depending on the Salesperson’s role in the transaction, the Brokerage paid the Salesperson an agreed-upon percentage of the commission received by the Brokerage. In July 2009, the Broker told the Salesperson that he was going to close her location, but she could commute to the Brokerage’s other office. 

The Salesperson declined to commute to the other office, and made plans to move her license to another brokerage in her town and began telling her clients about this move.  These communications upset the Broker, and he terminated the Salesperson’s relationship with the Brokerage.  At the time she departed the Brokerage, the Salesperson had four transactions under contract with the closings pending.

Following the Salesperson’s departure, all four of the pending transactions closed.  Broker reduced each of the commission checks from what the Salesperson had previously received when a transaction closed.  The Broker sent the Salesperson a letter with each commission check explaining that the payment had been altered because of the additional work required by the Broker to complete each transaction.  In total, the Salesperson had her commissions reduced by $8847.41.

The Salesperson filed a lawsuit against the Broker, arguing that she was entitled to receive the entire commission amounts because she had earned her commission once the parties entered into the purchase contract.  The trial court ruled in favor of the Brokerage, and the Salesperson appealed.

The Court of Appeals of Iowa reversed the lower court.  The trial court had determined that the Salesperson, per the oral agreement between the Broker and Salesperson, did not earn her commissions until the transaction closed.  Since the Salesperson was no longer an employee of the Brokerage, the lower court determined that the Brokerage had no duty to pay her commissions for any of the transactions.

The court ruled that the Salesperson earned her commissions prior to her departure from the Brokerage, not when the transactions closed.  Looking at previous cases, other courts have determined that the commissions are earned once a binding contract is executed by the parties.  Since there was no contract between the parties requiring the payment of commissions only on closed transactions and there was no other evidence establishing that the closing was required for commission payment, the court found that the Brokerage owed the Salesperson the entire commission amounts.  Thus, the court reversed the lower court and sent the case back to the trial court with an order to enter judgment in favor of the Salesperson for the unpaid commission amounts.

Ernst v. Engel, 817 N.W.2d 31 (Iowa Ct. App. 2012).