New Requirements for Employee Commission Agreements

If an employer enters into a contract for employment with an employee for services to be rendered in California that involved payment by commission, the contract must be in writing and must set forth the method by which the commissions will be computed and paid. Labor Code § 2751(a), which went into effect on January 1, 2013, requires all commission-based employment contracts must be in writing and set forth the method for commission payment.

Specifically, it provides all commission contracts “be in writing and … set forth the method by which the commissions shall be computed and paid.” Cal. Lab. Code § 2751(a) (2012). Under the statute, employers must also “give a signed copy of the contract to every employee who is a party [to the contract] and … obtain a signed receipt for the contract from each employee.” The stated purpose for amending Section 2751 was to “protect employees from fraud and abuse, as well as protect employers from unnecessary litigation resulting from vague oral contracts.” Hearing on AB 1396 Before the S. Comm. on Labor and Industrial Relations.

If you have any employees that are paid on a commission basis, it is time to audit your commission agreements to ensure they comply with this new law. For further help with this, contact us.