Governor Brown sets a deadline for written commissions agreements

There are a myriad of ways in which employers can their employees.  Some employees earn their wages on an hourly basis; some receive a regular salary, while other are paid via commissions.  Oftentimes an employee’s pay is a hybrid of the above.  This article focuses on a new law dealing with employees who are paid via commissions. 

On October 7, 2011, Governor Brown signed AB 1396. This bill requires all California employers to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. Commission wages are defined as compensation paid to any person for services rendered in the sale of an employer’s property or services and based proportionately upon the amount or value thereof.

The bill imposes a deadline of January 1, 2013 for employers to reduce all commission agreements to writing.   The bill also requires employers to provide a signed copy of the contract to every employee covered by the commission agreement and obtain a signed receipt for the contract from each employee. While the new law does not spell out any specific penalties for violation of the law, presumably an employee could bring a suit under California’s Unfair Competition Law in the event of a violation.

California already regulates the payment of commissions, the calculation of commissions and what happens with a commission upon termination/resignation.  There are also technical regulations on the books dealing with overtime compensation to commissions-based employees.  As such, not only must employers must draft written commission agreements by the January 1, 2013 deadline, they should also review the contents of these written agreements to ensure they are clear and comply with established California law.