Beginning in 2013 CA Requires Written Commission Agreements For Employees

October 3, 2012

Effective Jan. 1, 2013, employees who perform any work in California and who are paid in whole or in part on a commission basis must be provided a written agreement setting forth the method by which their commissions will be computed and paid by their employer. This requirement will apply to all employers with employees who are: (1) providing “services to be rendered within” California, and (2) paid commissions, regardless of whether the employer has a fixed place of business in California. Thus, out-of-state companies that have no physical facilities in California will be subject to this requirement with respect to any commissioned employees who work in California. Likewise, employees whose primary office or work location is out of state but who nonetheless render part of their commissioned services in California will be subject to this requirement.

Under new California Labor Code § 2751, the written commission agreement must be signed by the employer, and the employee must sign a receipt for the agreement. Further, if the written commission agreement expires and the employee continues working without a new agreement, then the terms of the expired agreement will continue in full force and effect unless and until: (a) it is superseded by a new written agreement, or (b) the employment relationship is terminated by either party.

Like most areas of California’s wage and hour laws, complying with California law governing commission payments poses potential traps for unwary employers. Employers should consult with their legal counsel well in advance of new California Labor Code § 2751 going into effect in 2013 to ensure that compliant commission agreements are being utilized.

For questions regarding this new law or assistance in reviewing, revising or drafting related commission agreements, please contact the authors or any other members of the McGuireWoods Labor and Employment Group.