California has a new commission contract law, California Labor Code Section 2751, which takes effect January 1, 2013. Under this law, employers who compensate employees with commissions are required to enter into a written commission contract with the employee. The necessary contract must describe the method by which commissions are calculated and paid. Employers must also provide a copy of the signed contract to each employee, and obtain a signed receipt from each employee, and maintain a copy themselves. If the contract expires without being replaced by a new written contract and the employee continues his or her employment, the terms of the expired contract continue to apply to the earning of commissions until the parties sign a new contract or until the employment relationship is terminated.
“Commissions” under the new law has the same meaning as in California Labor Code Section 204.1. For purposes of these laws, commissions are defined as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” The new law excludes from the definition of commissions short term productivity bonuses such as those paid to retail clerks or bonus and profit sharing plans, unless the employer has offered to pay a fixed percentage of sales or profits as compensation.
Commission agreements should include provisions about when the commission is earned and when it will be paid, including the criteria for earning the commission and whether commissions are to be paid to employees upon the ending of the employment relationship.
There is no penalty specified in the laws for those who do not have written commission agreements. However, several other laws may provide a remedy, such as California’s Private Attorney General Act (“PAGA”) or California’s Unfair Competition Laws (Business and Professions Code Section 17200.)