South-Western Legal Studies in Business

Right to Sales Commissions Does Not Create Partnership Right
Description Appeals court held that an employee of an insurance company, who was paid a salary plus a share of commissions earned in an office, was not a partner in the operation; he was an employee on a fixed compensation basis, so he had no claim for a share of the value of the partnership when he was fired.
Topic Business Organization
Key Words Partnership; Employment; Dismissal
C A S E   S U M M A R Y
Facts Brown, a wholesale insurance broker, worked with Galtney and shared commissions. They were hired together by IBS to be its “Houston Team One” in the wholesale insurance market in Houston. They received a base salary plus split commissions on sales in Houston. IBS fired Brown a year later after it discovered problems with several insurance files he handled. Brown sued, claiming he had been wrongfully expelled from a partnership he had with Galtney at IBS. The district court dismissed his claim. He appealed.

Affirmed. Brown was an employee; he had not entered into a partnership with Galtney, so he had no claim against the value of a partnership. The Texas high court has held that to establish a partnership, a plaintiff must show 1) a community of interest in the venture, 2) an agreement to share profits, 3) an agreement to share losses, and 4) a mutual right or control or management of the enterprise. Brown was paid a salary and a set commission rate for sales he and Galtney made. That is not a share of the profits earned by IBS.

Citation Brown v. Swett & Crawford of Texas, Inc., ., 178 S.W.3d 373 (Ct. App., Tx., 2005)

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