UPDATE ON CALIFORNIA COMMISSION AGREEMENTS (2013)
Reminder: written and signed commission agreements are required by January 1, 2013
It is time to think about that to-do list for year end. One item on that list for all California employers should be to make sure you have updated, accurate, and signed commission agreements on file.
Last year AB 1396 was passed, requiring that any employer who pays commissions to employees must have a written contract setting forth “the method by which the commissions shall be computed and paid.” The employer must give a copy of the signed agreement to the employee and keep a signed copy on file. If the commission agreement expires, and the employee keeps working, then it is presumed to remain in effect until superseded or employment is terminated.
Do your pay practices actually involve commissions? The Labor Code defines commissions as compensation paid for services rendered in the sale of the employer’s property or services and based proportionally upon the amount or value thereof. AB 1396 specifically excludes short-term productivity bonuses paid to retail clerks, and bonus or profit sharing plans (unless they involve a fixed percentage of sales or profits for work to be performed).
When drafting your commission plans, make sure to clearly explain how the commission is calculated. Define terms such as “gross profit” versus “net profit” or “company accounts” versus “employee accounts.” Also clarify when the commission is earned versus when it is paid. For example, is it earned when the sale is booked or when it is paid? Clear terms on these issues will avoid ambiguity and disputes upon termination. Be sure to include a right to revise the agreement upon notice to the employee.
Make sure that you have a clear and unambiguous commission agreement, signed by all employees, in place by the first of the year.