Commissioned Sales Agreements Required by January 1, 2013

  • By: Ruth Evans, Owner of The Evans HR GROUP 

An area of dispute/concern that we see arise often, involves what compensation is due when a commissioned employee goes on a leave of absence, terminates employment for any reason, and/or is paid a draw against commissions but is completely upside down because sales goals weren’t achieved.  A “best practice” is to make sure that all commission agreements are in writing, and the agreement spells out all of the terms and conditions of this employment compensation arrangement.


While currently, many employers do not have these written agreements, effective January 1, 2013, California law will require that all employers who do business within the state must provide commissioned employees with a written agreement spelling out how commissions are calculated and how they are paid.  AB 1396 amends Labor Code Section 2751, and requires the following:


1)       By January 1, 2013, whenever an employer enters into a contract with an employee within the state and the method of payment will be based on a commission structure, the contract shall be in writing and must set forth the method used to calculate and pay commissions.

2)      The employee must sign and receive a copy of the contract.

3)      The contract shall remain in force until superseded by a new contract or the employment relationship is terminated.

4)      If the parties continue to work under the terms of the expired contract, then the contract terms are presumed to remain in full force until amended in writing.


Commission wages are compensation paid for services rendered in the sale of employer’s property or services.  For the purpose of this amended statute, short-term productivity bonuses, such as those paid to retail clerks, are not included.


Labor Code Section 2751 previously applied to out-of-state employers doing business in California and provided for triple damages if the employer did not provide a written agreement spelling out how commissions would be calculated and paid.  However, this statute was held invalid, because it only applied to out-of-state employers.   Again, the amended statute applies to all employers doing business within the state.


I personally don’t like the fact that we now have another law requiring employers to do something. That being said, I do believe that written agreements are beneficial to have and protect both parties when written well.  Such agreements should include all of the terms of the commission arrangement, not just those required by law.


If you have commissioned employees, you need to have your plan in writing by January 1, 2013.  While there are no penalties for not adhering to this requirement, it could be a basis for suit under California’s Labor Code Private Attorney General Act (PAGA).


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