Contractual Sales Commissions


Employers and employees alike should be made aware that under California law (originally passed as AB 1396) a written contract is required to define the formula by which an employee’s sales commissions are calculated by the employer.


Section 2751 of the CA Labor Code states:


(a) Whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.


(b)  The employer shall give a signed copy of the contract to every employee who is a party thereto and shall obtain a signed receipt for the contract from each employee. In the case of a contract that expires and where the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.


(c)  As used in this section, “commissions” has the meaning set forth in Section 204.1. “Commissions” does not include short-term productivity bonuses such as are paid to retail clerks; and it does not include bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.


So, employees paid on sales commissions, partially or fully, get well defined protection from employers that fail to pay them; or fail to pay the full amounts owed.


Independent sales agents, outside salespeople, and manufacturers’ sales representatives all have similar protections, but with much bigger potential penalties for failure of their Principals to comply – TRIPLE DAMAGES!


For more information on contracts and the rights of sales agents, outside salespeople, and manufacturers’ sales representatives click here.