A sales representative leaves a company, accepts a position with a competitor and expects to receive commissions from business generated before departure. The former employer, however, argues that the representative breached the agreement and forfeited the outstanding payments.
What initially appears to be a routine employment departure can become a costly contractual dispute. The disagreement may involve thousands of dollars in unpaid commissions, customer relationships, confidential business information and restrictions on future employment.
For businesses, poorly drafted commission agreements can create unexpected liabilities and operational disruption. For representatives, unclear payment conditions can put previously anticipated earnings at risk.
A significant October 2026 Illinois appellate decision illustrates how these issues can intersect. It also highlights why commission arrangements deserve attention when businesses negotiate employment contracts, manage sales teams and assess contractual risks.
How Sales Commission Agreements Work
A sales commission agreement establishes how a representative earns compensation for generating business. It typically identifies the commission rate, eligible transactions, calculation method, payment schedule and conditions under which commissions become payable.
For example, a company might offer a representative 5% of qualifying revenue. However, the agreement must clarify whether the commission is earned when a customer places an order, when the company ships the product, when an invoice is issued or when payment is collected.
These distinctions can materially affect compensation.
Consider a representative who negotiates a $200,000 order before leaving the company. If the agreement makes commissions payable only after shipment, the representative may not yet have earned the commission when employment ends.
Other arrangements involve recurring commissions from subscriptions, renewals or repeat customer purchases. Without clear provisions, disagreements can arise over whether the departing representative retains an entitlement to revenue generated after departure.
Businesses should also distinguish employees from independent contractors and independent sales representatives. Legal classification depends on the applicable law and actual working relationship, not simply the label used in an agreement. Different statutory protections and payment obligations may apply.
What Happens to Unpaid Commissions After Departure?
The treatment of outstanding commissions depends heavily on the contract and applicable law.
Some agreements provide that commissions become earned once a qualifying sale is completed. Others use shipment, customer payment or another measurable event as the payment trigger.
This distinction becomes particularly important when a representative leaves while orders remain pending.
Imagine a salesperson who negotiates several customer contracts worth $500,000 during the final month of employment. The company has accepted the orders, but delivery and invoicing will take place after the representative’s departure.
If the agreement defines the commission as earned when an order is accepted, the representative may have a contractual claim. If shipment is an express condition for earning the commission, the result may differ.
The same issue can arise with recurring revenue. A representative might argue that later renewals resulted from relationships established during their employment, while the company may maintain that the agreement does not provide continuing commissions after termination.
Employers should establish how pending transactions, returns, cancellations, renewals and post-termination payments will be handled. Representatives should understand those provisions before signing.
In Illinois, the Department of Labor explains that earned commissions can form part of final compensation owed to departing employees. The applicable rules and deadlines depend on the relevant legal framework and the circumstances of the employment relationship.
The 2026 Case: When a Sales Representative Joined a Competitor
An October 19, 2026 decision from the Illinois Appellate Court provides a particularly relevant example.
In Siwik v. Jasmine Enterprises Incorporated, 2026 IL App (3d) 250593, a sales representative who worked with a bridal-dress company challenged the withholding of commissions after she moved toward a competitor.
Her agreement provided for a 7.5% commission on the net value of dresses ordered and shipped to customers. It specified that commissions were not earned or payable until the company actually shipped the orders.
The agreement also restricted her from promoting or selling competing products while the contract remained in effect. A separate provision stated that a breach could trigger termination and the relinquishment of commission rights.
The representative submitted a termination notice in April 2022, with an intended effective date of May 22. She subsequently entered into an agreement to work for competitor Morilee. The former company argued that she had breached the existing agreement before her departure became effective.
The representative claimed approximately $40,397 in unpaid commissions. The dispute reached trial, where the court found that she had undertaken competing activity before the contractual termination date.
The appellate court affirmed the judgment in favour of the company on October 19, 2026. It concluded that, under the specific agreement and evidence presented, the commission-forfeiture provision operated as a valid liquidated-damages clause rather than an unlawful waiver of the Illinois Sales Representative Act.
The decision is significant, but its limits matter. The court considered the agreement’s precise language, the timing of the competing activity and evidence explaining how the company anticipated and assessed its potential losses. It did not establish that every commission-forfeiture clause is enforceable or that joining a competitor automatically cancels outstanding earnings.
The full Illinois appellate court decision in Siwik v. Jasmine Enterprises provides the details.
The Risks When Representatives Join Competitors
A departing salesperson may take valuable experience to a new employer, but the transition can create several business risks.
Customer relationships: Representatives often develop direct relationships with important accounts. A company may face disruption if customers follow the salesperson to a competitor or become uncertain about who manages their accounts.
Confidential information: Sales personnel may have access to pricing strategies, customer histories, product margins, sales forecasts and commercial plans. Using or disclosing protected information without authorization can create legal and financial exposure.
Competitive restrictions: Agreements may contain noncompete or nonsolicitation provisions. These are different contractual restrictions. A noncompete seeks to limit certain competing work, while a nonsolicitation clause generally addresses efforts to solicit specified customers or employees. Confidentiality provisions protect information rather than automatically preventing someone from changing jobs.
The legal enforceability of these restrictions varies by jurisdiction and circumstances.
An important 2026 update concerns the Federal Trade Commission’s proposed nationwide noncompete ban. The rule is not in effect and is not enforceable. Following court decisions and the FTC’s withdrawal of its appeals, the agency removed the rule from the Code of Federal Regulations in February 2026. State laws and other applicable legal restrictions therefore remain important.
Businesses should not assume that a noncompete is automatically valid simply because an employee signed it.
Hidden Contract Clauses That Can Create Financial Exposure
Some of the greatest risks are found in provisions that receive little attention during recruitment.
Commission triggers: An agreement should define exactly when a commission is earned and when payment becomes due. Terms such as completed sale or collected revenue should not be left open to conflicting interpretations.
Clawback provisions: These allow a company to recover previously paid commissions in specified circumstances, such as customer refunds, cancelled transactions or unpaid invoices. The agreement should identify the triggering events and calculation method.
Forfeiture clauses: These may seek to eliminate commission entitlements following a contractual breach. Their enforceability depends on applicable law, the wording and the facts. A forfeiture provision should not automatically be treated as valid.
Termination clauses: Agreements should explain notice periods, early termination, pending transactions and the treatment of commissions that become payable after departure.
Restrictive covenants: Noncompete, nonsolicitation and confidentiality provisions should be drafted separately and should reflect applicable legal requirements.
For business owners, these provisions are not merely administrative details. Poorly structured compensation arrangements can become sources of disputes, unexpected costs and management distraction.
Financial and Legal Consequences for Both Sides
Employers can face unpaid commission claims, legal expenses, disrupted customer accounts and potential damages where payment obligations are breached. Poor documentation can make it harder to establish which representative generated a sale or whether a commission was properly calculated.
Representatives face different risks. They may lose anticipated income, encounter delayed payments or face demands for repayment under contractual clawback provisions. Disputes can also create uncertainty when accepting a position with a competitor.
The applicable law matters.
The Fair Labor Standards Act establishes federal minimum-wage and overtime requirements for covered employees. Commission-based compensation does not automatically remove those protections, although certain exemptions and industry-specific rules may apply.
State laws can impose additional requirements. For example, Illinois has specific statutory provisions governing commissions owed to sales representatives and final compensation owed to employees. The classification of the individual and the nature of the agreement can affect which rules apply.
The FTC’s current noncompete rule status is also important when assessing the enforceability of restrictions on future employment.
How Businesses Can Prevent Commission Disputes
Businesses can reduce financial and legal exposure by treating commission agreements as important commercial documents rather than standard onboarding paperwork.
First, define the payment trigger clearly. State whether commissions are earned on order acceptance, shipment, invoicing, collection or another event.
Second, establish how pending transactions will be handled when a representative resigns or is terminated. Specify the treatment of recurring revenue, renewals, cancellations, returns and customer reassignment.
Third, maintain reliable sales records. Customer relationship management systems, order histories, invoices and written account assignments can help establish who generated a transaction and when a commission became payable.
Fourth, review clawback, forfeiture and termination provisions for consistency with applicable law. Any liquidated-damages provision should be carefully evaluated rather than used as a general penalty for leaving.
Finally, protect commercially sensitive information through appropriate confidentiality agreements, access controls and documented exit procedures.
These issues can also matter during acquisitions. Buyers reviewing a company’s contractual obligations should examine outstanding commissions, compensation arrangements and potential disputes as part of financial and legal due diligence. ALT Finance has previously examined related transaction risks in its coverage of working capital adjustments in M&A and AI in M&A due diligence.
Similarly, contingent compensation and payment obligations can affect how parties structure acquisition consideration, a subject explored in ALT Finance’s article on earnouts in acquisitions.
Conclusion: Why Clear Commission Terms Matter
Sales commission agreements influence more than employee compensation. They determine how businesses reward revenue generation, allocate customer relationships and manage the financial consequences of employee departures.
The October 2026 Siwik decision demonstrates how a carefully examined contract provision can shape the outcome of a commission dispute. It also shows why the result cannot be separated from the agreement’s language, the conduct involved and the applicable law.
For businesses, the priority should be transparent payment rules, reliable sales documentation and legally reviewed exit provisions. For representatives, understanding when commissions are earned and what restrictions continue after departure can help prevent unexpected financial losses.
When a salesperson joins a competitor, the central question is not simply who gets the customer. It is what the parties agreed, what obligations remain enforceable and which commissions have legally become payable.
Frequently Asked Questions
1. What happens to unpaid sales commissions when a representative leaves a company?
The answer depends on the commission agreement and applicable law. Commissions already earned may remain payable, while pending transactions may be subject to specific contractual payment conditions.
2. Can a former sales representative receive commissions after joining a competitor?
Yes, potentially. Joining a competitor does not automatically eliminate commission rights. The agreement, timing of the departure and applicable restrictions determine the outcome.
3. Can an employer withhold commissions after an employee resigns?
An employer cannot simply disregard applicable wage-payment laws or contractual obligations. Whether a particular commission is payable depends on when it was earned and the governing legal requirements.
4. What is a commission clawback clause?
It is a contractual provision allowing an employer or business to recover previously paid commissions in specified circumstances, such as cancelled sales or customer refunds.
5. Can a sales representative be restricted from working for a competitor?
Potentially, but enforceability depends on applicable federal and state law, the scope of the restriction and the circumstances. A signed clause is not automatically enforceable.
6. Who receives commission for a deal completed after a representative leaves?
The answer depends on the agreement’s definition of an earned commission, sales attribution rules and applicable law. The timing of the order, shipment, invoice or customer payment may matter.
7. How can businesses prevent disputes over sales commission agreements?
They can use clear commission formulas, documented sales attribution, defined payment triggers, transparent clawback provisions and carefully drafted termination procedures.
David Seidman is the Principal of Seidman Law Group LLC, where he serves as outside general counsel for small to mid-sized companies. A seasoned legal advisor and entrepreneur, he specializes in contract negotiation, commercial litigation, and strategic risk management across the hospitality and finance sectors.
