California Labor &
Employment Law Blog
Oct 10, 2011

New California Law Requires Written Contract for Commission Pay Arrangements

Topics: New Laws & Legislation, Wage & Hour Issues

Late last week, Governor Brown signed into law AB 1396, which requires commission pay arrangements to be set forth in a written contract.  All employers must comply by January 1, 2013. Under the new law, whenever an employer enters into a contract of employment with an employee for services to be performed in California and the employee’s compensation involves commissions, the contract must be in writing and set forth the method by which the commissions will be computed and paid.  The employer must give a signed copy of the contract to the employee and must retain the employee’s signed receipt of the contract.  In the event the contract by its terms expires but the parties nevertheless continue to work under the expired contract, its terms are presumed to remain in full force and effect until the contract is expressly superseded by a new contract or the employment relationship is terminated.  For purposes of the new law, “commissions” are defined in accordance with Labor Code section 201.4 as compensation paid to any person in connection with the sale of the employer’s property or services and based proportionately upon the amount or value thereof.  However, the new law specifies that “commissions” does not include short-term productivity bonuses nor bonus and profit-sharing plans, unless they are based on the employer’s promise to pay a fixed percentage of sales or profits as compensation for work.

There has been a fair amount of litigation in California over the meaning of “commissions” in cases dealing with the overtime exemption for certain commissioned salespersons.  This new law may well invite more litigation concerning commission pay within the state.  Employers who have employees performing work in California and who are even arguably paid in whole or in part with commissions should be provided a written contract (with an acknowledgement form for the employer to retain) setting forth the formula and timing for earning and payout of commissions.  Failure to comply could subject an employer to an action for penalties of $100 per pay period per aggrieved employee under the Private Attorneys General Act.

About CDF

For over 25 years, CDF has distinguished itself as one of the top employment, labor and immigration firms in California, representing employers in single-plaintiff and class action lawsuits and advising employers on related legal compliance and risk avoidance. We cover the state, with five locations from Sacramento to San Diego.

> visit primary site

About the Editor

Robin Largent has a regular presence in California state and federal courts and has been lead defense counsel and appellate counsel for large and small California employers in litigation (and arbitration) ranging from individual discrimination and harassment claims to complex wage and hour representative and class actions. She also leads the firm’s appellate practice, having substantial experience and success handling appeals, writ petitions, and amicus briefs in both state and federal court on issues such as class certification (particularly in the wage and hour arena), manageability and due process concerns associated with class action trials, exempt/non-exempt misclassification issues, meal and rest break compliance, trade secret/unfair competition matters, and the scope of federal court jurisdiction under the Class Action Fairness Act.
> Contact   > Full Bio   Call 916.361.0991

CDF Labor Law LLP © 2020

About CDF What We Do Contact Us Attorney Advertising Disclaimer Privacy Policy Cookie Policy