Commission Agreements Must be in Writing by January 1, 2013

December 10, 2012 – For California employers, effective January 1, 2013, all commission agreements for sales employees must be in writing. The requirement was added by California Assembly Bill 1396 which amended labor Code Section 2751. Violators face potentially costly penalties.

The new requirement does not apply to short-term productivity bonuses (such as those paid to retail sales clerks) or 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.

The following requirements must be met under the new law:

  1. Commission agreements must be in writing,
  2. The method by which commissions are computed and paid must be included in the agreement,
  3. Employees must be provided with a signed copy of the commission agreement,
  4. The employer must obtain a signed receipt from each employee stating that he/she has received a copy of the agreement.

Under the new law, if a commission agreement expires and the employee continues working, the terms of the former agreement are presumed to remain in full effect until a new agreement is signed or employment is terminated. So, if an employer does not take action to cancel or replace an expired agreement in writing, the employee will have a continued right to payment under the previous agreement.

If you have any questions regarding the requirement to have commission plans in writing, please contact your Nyhart consultant.