Thank you for sharing!

Your article was successfully shared with the contacts you provided.
A sales agent’s pitch to the Pennsylvania Supreme Court has helped overturn the rule that employees are automatically assumed to have an obligation to refund cash advances to their employers after they are terminated. Pennsylvania was one of only two states to hold on to what defendant Michael Polons called an “outdated” rule. But the decision by the majority does not mean employees like Polons will never find themselves stuck with a bill to repay advances or draws on commission. The majority in Banks Engineering Co. Inc. v. Polons directed trial courts to decide each matter on a case-by-case basis, looking to the contract’s language for guidance. The case the justices overturned, Snellenburg Clothing Co. v. Levitt, has been around since 1925. Under Snellenburg, an employee was liable to refund advances upon termination. But most jurisdictions have found that without an express or implied agreement, an employer can’t recover excess advances over commission earned. EMPLOYMENT CONTRACT According to the majority opinion penned by Justice Stephen Zappala, Polons, a sales representative, had a contract with Banks Engineering Co. Inc. that allowed him to draw up to $2,800 per month as an advance against sales commissions. The money would be paid back through commissions Polons earned over and above the amount of the advance. When Polons picked up his first paycheck, Banks had him sign an addendum to the agreement, which called the advances a “non-interest loan” and stipulated that upon termination Polons was required to pay back any money not covered by his commission within 90 days after his termination. At that time interest would begin to accrue. Banks’ draw in excess of commissions totaled $39,989 when he terminated his employment. Banks sued Polons for breach of contract when he wouldn’t refund the money, seeking the full amount plus interest. Both the trial court and the Superior Court said the case was controlled by Snellenburg, despite Polons’ argument that the case law was “out of date.” The Superior Court acknowledged that Pennsylvania and Alabama were the only two states to still follow the Snellenburg rule. Zappala explained that Snellenburg was thought to create a presumption in favor of repayment based in part on that court’s interpretation of the word “advance.” The Snellenburg court took the term to include by definition an expectation of repayment. But other jurisdictions, such as Florida, have said an advance is the equivalent of a salary, not a loan. Zappala said the Supreme Court was convinced that Snellenburg’s interpretation was no longer good law. “Having in mind the varied understandings of what is contemplated by an ‘advance’ or ‘draw,’ upon due consideration we are of the opinion that the assumption underlying the Snellenburg Clothing decision does not necessarily comport with common experience and understanding, and therefore we overrule that decision,” Zappala said. But the court was equally wary of adopting an approach like Florida’s. “It is equally erroneous, however, to assume that ‘advances’ or ‘draws’ are in the nature of salary, and thus to be repaid only from commissions. Rather, it is more appropriate to recognize that such terms are neutral with respect to the issue of repayment beyond commissions earned, and courts should follow the rules of contract interpretation generally applicable when parties to a contract disagree as to the meaning of its terms.” BARGAINING POSITIONS However, the decision to overrule Snellenburg did not mean the court created a presumption against the obligation to repay excess advances. Zappala said some jurisdictions might support that approach believing that advance or draw agreements are generally created by employers, who have a superior bargaining position. But a universal assumption cannot be made that every employer is in that position, he said. In fact, there could be enough facts in Banks’ case to prove that Polons was in a very fair bargaining position, Zappala said. “Since the evidence will vary from case to case, we find no cause to assume a particular interpretation and thereby assign the employer the burden of proving a contrary meaning. Indeed, our purpose in overruling Snellenburg Clothing is to remove precisely the same burden from the employee,” Zappala wrote. “Rather, the employer’s burden, as the party filing the complaint, is to produce sufficient evidence of entitlement to repayment to withstand a nonsuit. Beyond this, each party must offer the court evidence and advocate its position, and the court must weigh the plausibility of one interpretation against the other to ascertain the parties’ respective rights and duties.” Zappala remanded the case to the trial court to interpret the contract. In a footnote he explained that because Snellenburg was overruled, “courts may no longer rely as a matter of law on the meaning of the terms ‘advance’ or ‘draw’ assumed in Snellenburg Clothing.” However, a party can argue as a matter of fact that it relied on that presumption when it made the agreement. JUSTICES IN DISAGREEMENT Almost all of the justices put their two cents into the Banks Engineering decision. Justices Sandra Schultz Newman and Ronald Castille joined the majority, but Chief Justice John Flaherty and Justices Thomas Saylor and Russell Nigro each filed concurring and dissenting opinions. In a one-paragraph opinion, Saylor said he agreed Snellenburg should be overturned but said he would have adopted a presumption against the liability of sales agents to return of advances. He said that presumption would apply to Polons. Flaherty joined Saylor’s statement but filed his own opinion arguing that employers are generally in a superior bargaining position. He claimed Banks occupied that position. Flaherty also said the case did not need to be remanded because “the contract explicitly provided that the draw and repayment of advances applied solely during the life of the contract.” Nigro agreed with Flaherty that the case should not be remanded. For one reason, he said Snellenburg did not apply to the case because the agreement did address the repayment, although he agreed it should have been overruled. Nigro said Snellenburg applied only to agreements that don’t address repayment. “Moreover, as I believe the terms of the written contract between Banks and Polons does not provide for repayment of the draw beyond the termination of the contract, I see no reason to remand the case,” he said. Nigro cited the contract’s terms: “this draw will continue until the commissions exceed the draw and this contract is in effect.” “Thus, pursuant to the plain meaning of the contract’s terms, it is evident that Banks was entitled to reimbursement of its advances so long as Polons was still under the contract, but that the contract does not provide for reimbursement in the event of his termination,” Nigro wrote. “Insofar as the contract was drawn up by the employer, Banks Engineering, Banks was in the position to elaborate beyond the language it used if it so chose.”

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.