The California Courts have defined commission wages as those that arise from the sale of a product, not the making of a product or the rendering of a service. Commission compensation must always be the percentage of the price of the product or service sold. This means that it is not dependent on what you are selling, so long as you assist in making the sale happen. 

Assembly Bill 2675

California passed Assembly Bill 2675 which took effect on January 1, 2013, which requires all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for sales services. Your employer must provide you a signed copy of the agreement and obtain a signed receipt from each employee. There should never be any question as to how your commission payments are calculated and you should be able to reasonably figure the amount of commission you have earned for a sale and what will be paid to you. Where the employer fails to provide you the calculation method, the employer is violating California law. 

Understanding the Conditions to Commission

Rarely do we see an agreement that says, once you get a buyer to agree to 'x' number of sales, you have earned your commission. Typically, there are additional conditions that you must meet before the commission is deemed earned per the terms of your contract. Although getting the buyer to commit is an obvious starting point, some commission agreements will not calculate until the buyer has made a full and complete payment. This can be days or months after the sale was initiated. If the employee "procures" the cause of the sale, they will eventually be entitled to those commissions if the Company does in fact get paid. Different Companies use different models to define when the sale has been finalized and commission earned. In some circumstances, you may have agreed to a reconciliation and chargeback of the commission if the product you helped sale is returned by the customer. However, this must be very clearly spelled out in the terms of your agreement and an employer may not just do this on their own whim.

Calculating the Commission

Your commission will be based on either the 'gross' sales figure or the 'net' sales figure.

Starting with 'gross' sales; the gross sales are the total amount of the sales without making adjustments for costs related to generating those sales. The Costs typically involved in generating a sale could be the cost of creating the product or service, payment of labor for the service, or other overhead expenses that go into getting the product or service to the customer. A gross sales commission we can typically expect to fall at a lower % than a net sales commission; but this does not necessarily translate to more or less commission payment due to you. A 'net' sales commission will be a % of the profit the company will receive thanks to your service in making the sale happen. This is after all costs are calculated. Here are a couple examples. 

Example

You are a salesman selling Miller Wilmers APC t-shirts. The T-shirts cost $15 to make and sell for $30. The Salesperson sells 100 T-shirts. 

The gross sales commission is 10% of the total sale. In this case, our salesperson has sold $3,000 worth of T-shirts. The salesperson can expect a commission of $300 for making the sale at a 10% gross sales commission. 

The net sales commission is at 20% of the net sale. In this case, our salesperson has sold $3,000 worth of T0shirts, but it cost Miller Wilmers APC $1,500 to make them. The salesperson will get a commission of 20% out of the $1,500 net sale, or $300. 

Timing of Payment

Commission is a form of wages in California under the Labor Code. Employees are typically paid their regular wages, based on their agreement with the company, every other week or on the 1st and 15th of the month. We also understand that for a termination, employers are required to pay their employees immediately upon termination; and for a resignation, within 72 hours. Commission is different. For commissions earned between the 1st and 15th day of the month, then payment must be made between the 16th and the last day of the same month. For commission earned between the 16th through the last day of the month, payment must be made between the 1st and 10th day of the following month. 

My Employer Fired Me Before Paying my Commissions. What Can I Do?

The Commission is earned when the employee has satisfied the conditions to receive that commission. This much is obvious. If those commissions have been earned and you have been fired before you have been paid, you have a right to that compensation as soon as the commission can be "reasonably calculated." Although this is vaguely defined in our laws, it will be the exact moment the employer knows what the commissions owed are, that he must pay those commissions after termination. 

I satisfied some, but not all of the conditions and was terminated before I could complete them. What happens to my commission now?

When an employee is terminated by the employer, the employee has effectively been prevented from completing the terms of the sale and may be able to recover some, or all of the commissions that would have been owed had the employee been entitled to stay. The Courts state that the employee has been prevented by the employer from completing the terms of the contract or that an impossibility of performance has occurred as a result of the termination, which can be used as the basis for the employee to recover those commissions despite not having completed all of the conditions otherwise required to earn the commission.

I satisfied some, but not all of the conditions before I voluntarily resigned. Now what? 

Well, those terms we used above, "prevented" and "impossibility" no longer apply. As the employee voluntarily chose to walk away mid performance, the employee will not be entitled to those commissions. There are many instances where an employer will attempt to state that an employee has resigned, when the reality is the employee was terminated. To be safe, it is best to finish the terms of a commission before deciding to walk away voluntarily.

I believe I am owed Commissions. So what do I do?

Whether you have been terminated or not, if the employer owes commissions you are entitled to them. If the employer is withholding your earned commission, it is important to contact a knowledgeable employment attorney who understands not just the ins and outs of employment law, but contract interpretation and can reasonably calculate those commissions when creating a demand.  Contact our office at Miller Wilmers APC, a Los Angeles, California law firm for a free consultation.