You’re about to hire your next salesperson. You’ve got the comp structure in your head—base salary, percentage on closed deals, maybe an accelerator for overachievement. You write it up, they sign it, and everyone’s excited.
Six months later, they leave. There are three deals in the pipeline they worked for months. One closed the week after they resigned. Another got cancelled by the client. A third is still pending.
Now what?
If your commission plan doesn’t answer that question precisely, you’re about to find out how expensive vague language gets.
The Gap Most Founders Don’t See Until It’s a Dispute
Commission agreements for early-stage companies tend to be written when everyone’s optimistic. The relationship is new, the rep is motivated, and nobody wants to start things off by negotiating departure scenarios. So founders use language like “commissions are paid on closed deals” and move on.
That phrase sounds clear. It isn’t.
“Closed” to a salesperson often means “I got the signature.” “Closed” to a founder sometimes means “we received payment and the client didn’t cancel within 30 days.” Those two definitions can be thousands of dollars apart.
Here are the three gaps that arise most often—and the ones worth reviewing before your next sales hire.
Gap 1: When Is a Commission Actually Earned?
The single most common source of commission disputes is the absence of a defined “earned” trigger.
Consider this scenario: A rep closes a $40,000 annual software contract on the last day of the month. They’re entitled to a 10% commission—$4,000. The client cancels during a 60-day free cancellation window two weeks later.
The rep argues the commission was earned at signature. You argue nothing was earned because no revenue was retained.
Who’s right depends entirely on what your agreement says.
A well-drafted commission plan defines the earned trigger with precision: Is it contract signature? First payment received? Expiration of a cancellation window? Completion of implementation?
There’s no universally correct answer—it depends on your business model. But there has to be an answer, written down, before the first rep signs.
Gap 2: Clawbacks for Cancelled or Refunded Deals
Even if your agreement defines when a commission is earned, you may still need a clawback provision for deals that fall apart after payment.
Imagine a rep closes a deal, you pay the commission, and the client requests a full refund three weeks later due to a product issue. You’ve paid out $4,000 on revenue you no longer have. Can you recover it?
Without a clawback clause, the answer is probably no—at least not easily.
Clawback provisions aren’t punitive. They’re a reasonable allocation of risk that says: if the underlying deal doesn’t hold, the commission tied to it doesn’t hold either. Most experienced sales reps have seen these before and accept them when the terms are fair and clearly defined upfront.
The key is specificity: What triggers a clawback? What’s the timeframe? Is it the full commission or a prorated amount? If you’re vague here, you’ll negotiate it under pressure during a dispute instead of in advance when both parties are calm.
Gap 3: Pending Deals When a Rep Leaves
This is where things get most contentious.
A rep resigns with three deals in late-stage negotiation. One closes two weeks after their last day. Another closes two months later. A third never closes.
What do you owe?
Your answer should already be in the commission plan—and it rarely is.
Some companies pay full commission on deals that close within 30 days of departure, nothing after that. Others pay a reduced percentage on deals that close within a defined window. Others pay nothing on deals the rep didn’t personally close.
None of these approaches is inherently wrong. What’s wrong is having no defined approach at all, because then you’re deciding it retroactively—after the rep has already left, possibly already consulted an employment attorney, and definitely already formed a strong opinion about what they’re owed.
The conversation is much easier when you can point to a signed document that addressed this scenario before it happened.
State-Specific Considerations
[ADDED: One additional consideration: some states have specific laws governing commission payment timing and terms. For example, certain jurisdictions require payment of earned commissions within a set timeframe after separation, regardless of when the underlying deal closes. If you operate in multiple states or have remote sales teams, state-specific commission requirements should be reviewed as part of your plan structure.]
Review This Before the Next Hire, Not After the Next Dispute
Commission disputes are almost never about bad faith. They’re almost always about two people reading the same vague document and reaching different conclusions.
The fix isn’t complicated. Before your next sales hire, sit down with your commission plan and ask: If this rep resigned tomorrow with three deals pending, what would happen?
If you can’t answer that from the document, the document needs work.
This review also provides an opportunity to ensure that your offer letter, commission plan, and any IP assignment provisions work together cohesively.
About Garcia-Zamor: We’re the fractional general counsel for innovators—protecting both your business operations and your intellectual property. Ruy Garcia-Zamor leads business growth strategy, Elliott Alderman (former Copyright Office attorney, 40+ years IP expertise) handles intellectual property, and Claudia Castillo specializes in employment law. Contact us at garcia-zamor.com or (410) 531-9853.
