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Commission Contracts

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Commission contract law AB 1396, which takes effect on January 1, 2013, adds new requirements for commission agreements with your California employees.

The California law includes the following requirements:

  • Must be in writing.  When an employee is paid commission, the contract must be in writing and must “set forth the method by which the commissions shall be computed and paid.”
  • Must be evidenced by a receipt. The employer must give a signed copy of the agreement to his employee and keep a “signed receipt for the contract from each employee.”
  • Must be superseded. If a contract expires, the terms will remain in “full force and effect until they are superseded or employment is terminated.”

 The following payments are not considered commission under the law:

  • Short-term productivity bonuses paid to retail clerks
  • Bonus and profit sharing plans, unless the employer “pays a fixed percentage of sales or profits as compensation for work to be performed.”

There is no information provided in the bill about enforcement, but the law removes a former provision in Labor Code 2751 that required treble damages.