If you have any employees that receive commissions as part of their compensation package, you need to be aware of a new law that went into effect as of January 1, 2013. AB 1396 amended California Labor Code section 2751.
The new law provides, “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.”
It further provides, “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.” You should keep a copy of the signed acknowledgment receipt in the employee’s personnel file.
Commissions are defined as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Lab. Code § 204.1. For purposes of the new written commission agreement requirement, commissions do not include the following:
(1) Short-term productivity bonuses such as are paid to retail clerks;
(2) Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract; and
(3) 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.
There are no specific penalties set forth under§ 2751 for a violation. However, an employee could nevertheless file suit for a Labor Code violation under the Private Attorney General Act, which allows the prevailing party to recover both penalties and attorney fees.