Pre-petition, an employee-creditor worked for the debtor in contract management and sales, earning salary and commission. Under the terms of his compensation agreement, the creditor earned commissions as a percentage of gross sales on contracts that he assisted in procuring. The debtor’s employee handbook provided that commissions were “paid once the [debtor] is paid in full” on a contract, and “on the last payday of the month following the end of the quarter.” The debtor’s compensation and incentive plan confirmed that commissions were “paid on the Quarter of receipt of payment” on a contract.
The creditor assisted in procuring a certain contract with the USDA 194 days pre-petition. The USDA paid the debtor in full on the contract 178 days pre-petition. The debtor failed to pay the creditor his commission on the USDA contract.
Post-petition, the creditor filed a proof of claim for unpaid wages, a portion of which the creditor claimed was entitled to priority status under 11 U.S.C. § 507(a)(4). The debtor objected, arguing that no portion of the creditor’s claim was entitled to priority status because his commission was earned outside the 180 days prescribed by the statute. On cross-motions for summary judgment, the debtor argued that for priority purposes, the date that the creditor’s commission was earned was the date that the creditor assisted in procuring the USDA contract. The creditor argued that the date that his commission was earned was the date that the USDA paid the debtor in full on the contract. In support of his position, the creditor argued, “The point at which commissions are ‘earned’ can vary depending upon the particular contract between the parties at issue.” The creditor construed the debtor’s employee handbook as a contract between the parties.
The Court found that the creditor offered no evidence to suggest that there was a contract between himself and the debtor which dictated when commissions were earned. The Court acknowledged that other courts that have interpreted the meaning of “earned” in the context of the priority wage statute have uniformly held that wages are earned when the employee provides the services that give rise to the wages. This is true regardless of when, if ever, the wages are actually paid. The Court concluded that the creditor’s commission was earned 194 days pre-petition when the debtor and the USDA entered into the contract, even though the creditor’s commission was not payable until the USDA subsequently paid the debtor in full on the contract. Accordingly, the Court held that no portion of the creditor’s claim was entitled to priority status.