A commission can still be owed when a sale doesn’t close, but whether you actually collect depends on three things: what your contract says about when the commission is earned, who caused the deal to fall apart, and whether you’re classified as an employee or an independent contractor. Most modern agreements tie payment to a completed closing, which shifts the risk of a failed deal onto the salesperson. When the contract is silent, an older common law rule protects you. And when the seller or employer is the reason the transaction died, they generally can’t hide behind a “no close, no commission” clause to avoid paying.
Start With What Your Contract Says
Whatever else is true about commission law, the written agreement almost always controls. Most listing agreements, employment contracts, and independent contractor agreements define exactly when a commission is “earned” and when it becomes “payable.” Those two words are not synonyms, and the distinction matters. A commission can be earned upon contract execution but not payable until closing. If the deal falls through, whether you get paid turns on which word your agreement uses as the trigger.
The most aggressive version is the “no close, no commission” clause, which eliminates any right to payment unless the transaction closes and the seller actually receives proceeds. Agreements can also list specific conditions that must be satisfied before payment is due: board approval, financing contingency clearance, satisfactory inspections, or title transfer. If any listed condition fails, the commission evaporates regardless of how much work you put in.
Courts enforce these provisions strictly. A salesperson who spent six months cultivating a deal has no legal claim if the contract clearly requires a recorded deed and the deed was never recorded. Most commission disputes are won or lost on the precise language buried in the agreement, not on grand legal doctrines. If you haven’t read your contract’s payment trigger language recently, do it now, before a dispute arises.
The Default Rule When the Contract Is Silent
When a written agreement doesn’t specify when a commission is earned, courts fall back on the common law “ready, willing, and able” standard. Under this rule, a broker or salesperson earns the commission the moment they produce a buyer who is prepared to go forward on the seller’s terms and has the financial capacity to close. “Able” means something concrete: a pre-approved mortgage commitment, verified funds, or another demonstrable source of the purchase price. Once the agent delivers that buyer and a contract is signed, the commission is earned, even if the deal later dies for reasons having nothing to do with the agent.
This standard puts the risk of a failed closing on the seller. If the buyer gets cold feet, financing falls through after initial approval, or a third-party contingency goes sideways, the agent’s core obligation was already met. The law treats that obligation as finding a viable buyer and bringing the parties to agreement, not shepherding the deal through every post-contract hurdle. Fewer disputes actually turn on this default than you might expect, because most agreements now spell out earning conditions in detail.
When the Seller or Employer Kills the Deal
Even an airtight “no close, no commission” clause has one major limit: it won’t protect a seller or employer who torpedoes the deal themselves. The prevention doctrine holds that a party who prevents the fulfillment of a condition cannot then hide behind that unfulfilled condition to avoid payment. If the seller deliberately refused to provide required disclosures, failed to show up at closing, or decided to sell to someone else, they can’t point to the unclosed transaction and refuse the commission.
The alternative would be absurd. A seller could list a property, let the broker spend months finding a perfect buyer, then sabotage the closing and walk away owing nothing. Courts treat intentional interference with a closing the same as if the closing had occurred for purposes of commission liability. The agent gets the full commission they would have earned had the deal closed.
The doctrine has limits. It requires genuine bad faith or deliberate obstruction, not a seller who got a legitimately better offer or hit an honest financing problem. The burden falls on the agent to prove the seller’s actions were the reason the deal collapsed, which means documenting every communication and preserving the timeline. If you sense a seller is going sideways, start building the paper trail immediately.
What If Another Agent Was Also Involved?
When more than one agent worked on a deal, the commission usually goes to the “procuring cause” — the agent whose efforts were the direct catalyst for the buyer’s decision to purchase. You can be the procuring cause even if you didn’t attend the final negotiations or the closing, as long as your introduction and groundwork led to the deal. Conversely, if negotiations broke down entirely and a second agent independently restarted them, the second agent becomes the procuring cause.
This matters most when the seller bypasses the original agent and negotiates directly with the buyer the agent introduced. In that scenario, the original agent has a strong commission claim without having been present at every step. But if the buyer genuinely terminated the relationship before a deal materialized, that termination defeats the procuring cause claim.
A Note on Earnest Money
If a buyer defaults and forfeits an earnest money deposit, the broker’s right to a share of that money is not automatic. In most situations the broker holds earnest money in trust and cannot touch it until the parties agree in writing on how to divide it, or a court orders disbursement. Some purchase agreements include a clause splitting forfeited earnest money between the seller and broker, but the broker’s share typically cannot exceed the agreed commission amount. Without an express contractual provision, the broker generally has no right to deduct their fee from the deposit.
Employee or Independent Contractor Changes Your Options
The legal tools available to collect an unpaid commission depend heavily on how you’re classified. W-2 employees get the benefit of federal and state wage protection statutes. Independent contractors are largely stuck with contract law, meaning they have to sue for breach of contract, and the protections, penalties, and enforcement mechanisms that come with wage laws don’t apply.
Under the Fair Labor Standards Act, the distinction turns on “economic reality” rather than whatever label the employer put on the relationship. The key question is whether the worker is economically dependent on the employer for work or genuinely in business for themselves. Two factors carry the most weight: how much control the employer exercises over how the work is done, and whether the worker has a genuine opportunity for profit or loss based on their own initiative.
Salespeople face an additional wrinkle. The FLSA’s outside sales exemption removes minimum wage and overtime protections for employees whose primary job is making sales away from the employer’s place of business.1eCFR. 29 CFR Part 541 Subpart F – Outside Sales Employees This exemption doesn’t eliminate a commission claim, but it does remove certain federal wage protections that inside sales employees enjoy.
Wage Claims Give Employees Real Leverage
Most states treat earned commissions as wages once the contractual conditions for earning them have been met. That classification is powerful: it opens the door to state labor department enforcement, mandatory payment timelines (often the next regular payday), and penalties that go well beyond the unpaid amount. Filing a wage claim through a state labor department is typically free and doesn’t require hiring an attorney.
Penalties for employers who withhold earned commissions vary by state but can be severe. Some states impose waiting-time penalties calculated as a day’s pay for each day the commission remains unpaid, up to a statutory cap. Others allow the salesperson to recover double or even triple the unpaid amount if the employer’s refusal to pay was willful. At the federal level, the FLSA provides for liquidated damages equal to the full amount of unpaid wages, effectively doubling the recovery, plus reasonable attorney’s fees and court costs.2Office of the Law Revision Counsel. 29 U.S. Code 216 – Penalties
The catch: the commission must actually be “earned” under the terms of the agreement before these protections attach. If your contract says the commission isn’t earned until closing and the deal never closed, calling it a wage claim won’t work. Wage law protections only kick in once the earning conditions are satisfied. That’s why the contract language matters so much. It determines not just whether you’re owed money, but which legal tools you can use to collect it.
Deadlines You Cannot Afford to Miss
Commission claims are subject to strict time limits. Missing them means losing the right to collect permanently, no matter how strong the underlying case.
For federal wage claims under the FLSA, the statute of limitations is two years from the date the commission should have been paid. If the employer’s violation was willful, meaning they knew they owed the money and chose not to pay, that window extends to three years.3GovInfo. 29 U.S. Code 255 – Statute of Limitations An employer who genuinely believed the commission wasn’t earned gets the shorter deadline; one who knew better and stalled gets the longer one.
For breach of contract claims, which is the primary route for independent contractors, the deadline depends on state law and whether your agreement was written or oral. Written contracts generally carry longer limitation periods (four to six years in most states) than oral agreements (two to four years). These are rough ranges; the exact deadline in your state could be shorter. The clock usually starts running on the date the commission should have been paid or the date of the breach, not the date you discovered the problem.
State wage claim deadlines sometimes differ from contract claim deadlines. Some state labor departments impose their own filing windows shorter than the court-based statute of limitations. If you’re considering both a wage claim and a lawsuit, check both deadlines and file whichever comes first.
How Recovered Commissions Are Taxed
Money you receive from a settlement or court judgment for unpaid commissions is taxable as ordinary income, just as the commission itself would have been. The IRS treats it as compensation for lost wages, and your employer (or former employer) should report it on a W-2.4Internal Revenue Service. Publication 525 (2025), Taxable and Nontaxable Income Punitive damages and pre-judgment interest included in a settlement are also taxable. The only carve-out is for damages compensating a physical injury, which almost never applies in a commission dispute.
A common frustration: if you hire an attorney on a contingency fee basis and they take 33% of your recovery, you still owe tax on the full amount, not just what you actually received. The tax code provides an above-the-line deduction for attorney fees in employment-related claims, including actions under the FLSA. This deduction applies directly against gross income, so you’re taxed on your net recovery rather than the gross amount.5Office of the Law Revision Counsel. 26 U.S. Code 62 – Adjusted Gross Income Defined The deduction covers claims under a broad range of employment statutes, as well as state and local employment laws and common law claims related to the employment relationship.
Independent contractors face a different picture. The above-the-line deduction for attorney fees in employment claims may not apply because the underlying claim is contract-based rather than employment-based. The Tax Cuts and Jobs Act suspended miscellaneous itemized deductions, which included unreimbursed legal expenses, through 2025. Those deductions are scheduled to return for the 2026 tax year, which could allow independent contractors to deduct litigation costs as an itemized deduction. Check current rules before filing.