Commission Agreements Deadline

Nov 19, 2012

Starting January 1,2013 all employers are must put all commission agreements in writing to be in compliance of AB 1396.

This  bill may seem simple and straightforward, however it contains a number of potential pitfalls that could result in wage-and-hour claims filed against employers.

Quick Summary
AB1396, passed in 2012, amended Labor Code Section 2751, which previously applied only to employers with no fixed California location.  AB 1396 applies to employers located inside and outside of California.

Any employee hired to perform work for commission in California must receive a written contract that includes the method for calculating and paying commissions after January 1, 2013.

A contract must be given to each employee and a signed acknowledgement that he/she received the contract.
Contract will remain in replace if expires and not replaced until it’s replace or end of employment.

Best Practices - Commission Agreements should:

- Be in writing, signed and include an acknowledgement of receipt for employee to sign.

- Set for eligibitlity criteria, such as which employees are covered, length of service, ect.
- Define when commission is “earned.”
- Explain that “advances” of earned commissions are loans that must be reconciled against later, earned commissions.
- Lawfully define “commission” to avoid formulas that may be held invalid.
- Explain the formula for computing commissions, including commission rates, and whether the rate is applied to gross sales, net sales, gross margin, ect.,
- Explain how “Splits,” changes in territory or reassigned customers are treated under the plan.
- Address how returns and refunds affect commissions, if applicable.
- Address termination of employment and its effect on unearned or unpaid commissions.
- Avoid language that may sound like a “forfeiture” of an otherwise earned commission.
- Include the term of the agreement, and how commissions will be paid on sales made before and after the effective date of the plan.
- Explain the employer’s discretion to interpret, modify or discontinue the terms of the plan.

*This is a very basic outline of AB 1396 and an employers should consult and certificated HR Consultant this outline is a basic overview to provide an introduction.

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