Effective January 1, 2013 all employers who have employees working in California on a commission basis are required to have written commission agreements.  The law also requires that the employer have a receipt from each commissioned employee acknowledging that they have received a copy of their respective commission agreement.  Now is the time for employers to prepare these agreements and distribute them to their commissioned employees so that they comply with the new law at the start of 2013.

What employers are covered?  Any employer who employs a commissioned worker to provide services within the state of California is covered.

What is considered a commission?  A commission is wages paid for services rendered in the sale of property or services, which are paid based on a proportion of the value of what is sold.   

What should be in a commission agreement?  The commission agreement must explain how the commission is computed and paid.  In drafting the commission agreement we recommend that special attention be paid to the definition of when a commission is “earned” by the employee since once a commission is earned it cannot be forfeited and usually must be paid by the next payroll date.  

Keep the commission agreement updated!   If an employee continues to work under the terms of an expired commission agreement, the new law will presume that the expired commission agreement is still enforceable.  Therefore when the terms and conditions for earning a commission change, an employer should create a revised written agreement setting forth these changes and stating that the old commission agreement has been superseded.

What happens if an employer does not comply with the law?  There is no defined penalty for violating the new law.  However, violation of the law could lead to exposure for claims under California’s Private Attorneys General Act (“PAGA”) and unfair competition law.