| Effective January 1, 2013, all employers (not just those outside of California without a permanent fixed place of business in California) making agreements to pay employees commissions for services to be rendered in California must put such agreements in writing. The written agreement must be signed by both the employer and employee. The agreement must indicate "the method by which the commissions shall be computed and paid." This provision also states that when the contract expires and the parties continue to work under the expired contract’s terms, the contract terms are presumed to remain in full force and effect until the contract is superseded or either party terminates the employment.
While many employers already document their commission plans in a formal program; this will not be sufficient to comply with the law. From a practical standpoint, the agreement should not only include the mandated reference to the method by which the commissions shall be computed and paid, but also other key terms such as the definition of commissions; the timing of both earned and payable commissions; and commission payout procedures upon or even following termination.
Amended Section 2751 adopts the definition of commissions from Labor Code section 204.1, as “compensation paid to any person in connection with the sale of the employer’s property or services and based proportionately on the amount or value thereof”. It also retains prior language clarifying that commission “does not include short-term productivity bonuses such as are paid to retail clerks, and it does not include 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.”
Given the length of warning that employers are being provided to comply with the law, it is advisable to review, update, and/or draft commission agreements well in advance of January 2013.
|
