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New California Law Requires All Commission Plans To Be In Writing

JCMHFeatured Post Strategy New California Law Requires All Commission Plans To Be In Writing

New California Law Requires All Commission Plans To Be In Writing

Employers were given a heads up when AB 1396 was passed and went into effect on January 1, 2012, that California law will require employers to provide a written commission plan agreement beginning on January 1, 2013.

Labor Code Section 2751 mandates that a written commission agreement must be in place for all employees performing services in California and whose compensation includes commission. The agreement must set forth the method for computing and paying commissions. Additionally, employers must deliver a signed copy of the agreement to each employee and obtain a signed receipt.

For purposes of the new law, “commissions” are defined as set forth in Labor Code Section 204.1 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.” However, Section 2751 specifically excludes from commissions:

– Short-term productivity bonuses such as are paid to retail clerks; and
– Temporary, variable incentive payments that increase, but do not decrease, payment under the written commission agreement.
– The new law also provides that upon expiration of the written commission agreement, the agreement is presumed to remain in full force and effect until the agreement is superseded or employment is terminated by either party.

While the new law is silent as to any penalties for failure to comply, employers should proceed with caution. As a practical matter, in the event there is a dispute between an employer and an employee over commissions due, it is likely that the employee’s interpretation of the commission structure will be given greater weight by a court or the Labor Commissioner if the employer failed to comply with the new law.

Employers without written commission plan agreements should take steps to ensure that they are in compliance with the new law before the end of the year. Employers that have previous written commission plan agreements in place can use this opportunity to ensure that their plans are compliant with the new law. As always, if you have questions or concerns about how the law may specifically affect your organization, JCMH is here and we can refer you to an attorney and assist you with the process.

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