A new California law requires employers that have any employees who will receive commissions for providing services in California to have written commission agreements that meet specific requirements. The law is effective January 1, 2013,
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Get Your Report Now!Assembly Bill 1396, which amends Section 2751 of the state Labor Code, applies to each employee paid a commission, regardless of whether it represents all or just a portion of the employee’s compensation, and to employers located in or outside of the state. A federal court had declared Section 2751 unconstitutional because it applied only to employers located outside of California.
Definition of ‘commission’
The new law retains the Labor Code definition of “commission wages” as compensation paid to any person for services rendered in the sale of the employer’s property or services and based proportionately on the amount or value of the property or services sold.
Commission wages don’t include short-term productivity bonuses (for example, those paid to retail clerks). The term also doesn’t encompass bonus and profit-sharing plans—unless the employer has offered to pay a fixed percentage of sales or profits as compensation for work to be performed.
Overview of commission agreement
The following requirements will apply as of January 1 whenever: (1) an employer enters an employment contract with an employee for services to be provided in California, and (2) the contemplated method of payment of the employee involves commissions:
- The contract must be in writing.
- The contract must set forth the method by which the commissions will be computed and paid. You can state a percentage or refer to a commission schedule.
- The employer must provide the employee with a signed copy of the contract.
- The employer must obtain a signed receipt for the contract from the employee, acknowledging both receipt of and agreement with the contract.
If the contract expires but the employee continues to work under its terms, the terms will be presumed to remain in full force and effect until the contract is superseded by a new contract between the parties or either party terminates the employment.
Contract and receipt
The labor commissioner has not yet provided guidance on the new requirements. Consequently, without guidance on whether the contract and receipt can be one document, it’s probably advisable to at least insert a page break or some other means to show separate acknowledgement of the agreement and receipt.