The legal maneuver that allows corporations to pretend that state laws don’t exist

by Lydia DePillis

The month before he left Suntrust Mortgage, in March of 2015, loan officer Bill Miller had the best sales of his life. He says he brought in $7.4 million worth, which should have entitled him to around $60,000 in commissions. He says he even worked scores of hours into the next month — after he’d joined another local firm — to make sure the loans went through.

What happened next was a surprise. His commissions never materialized. At the end of April, "I said, gee whiz, here’s all the loans I closed,” Miller recalled, in a glassy conference room at his new employer, 1st Mariner Mortgage. "And they said, 'we’re not paying you for any of those.’”

In Maryland, salespeople are entitled to commissions on all deals they substantially complete, regardless of whether they’re still employed by their company when the deal closes. Miller appealed to the Maryland Department of Labor, Licensing, and Regulation, and the agency agreed he’d been shorted $56,967.81. “We determined that your employer violated the Maryland Wage Payment Law...by failing to pay your commission wages,” it read.

But Suntrust disagrees. In a letter to Miller’s attorney, a lawyer for the company pointed out what had seemed like an innocuous clause in the standard contract presented to loan officers: “The Plan will be governed by and interpreted in accordance with the laws of the state of Georgia…regardless of the location of the Participant’s employment.”

And in Georgia, loan officers aren’t entitled to commissions on deals that close after they quit.

The legal arrangement is known as a “choice-of-law” provision, and it’s one of a growing number of tools being used by corporations to protect their interests.

Choice-of-law provisions are common in contracts — they allow a company with national operations to standardize its agreements across many states. Even The Washington Post employs them in certain instances. Some companies pick states with laws friendly to their business. For example, many banks are incorporated in South Dakota and Delaware, where the institutions face no usury caps.

In response to an inquiry from the Washington Post, while declining to comment on specific employee matters, Suntrust says that it does include a choice-of-law provision in all its loan officer agreements.

"Like many multi-state companies, we select a governing law for these documents to ensure consistency of interpretation and application, and in our case, we selected Georgia law which is where our parent company is based,” said spokesman Mike McCoy in an email.

Read the full article from The Washington Post