California Commission Contract Rules Went into Effect January 1

Assembly Bill 1396 went into effect on January 1. It compels employers who pay commissions to employees to enter into written commission contracts with the employees. The written contract must describe the method of computing the commission and how the employee will be paid. The employer must also provide a copy to the employee and obtain an acknowledgement of receipt from the employee and retain in their files.
California Labor Code section 204.1 defines “commission wages” as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.” Assembly Bill 1396 excludes from the definition of “commissions” short term productivity bonuses such as those paid to retail clerks or bonus and profit sharing plans, unless the employer has offered to pay a fixed percentage of sales or profits as compensation.
The new law does not contain any specific penalties for failing to comply. However, a violation of the new law could result in penalties under California’s Private Attorneys General Act (which allows employees to sue the company on behalf of the state and seek penalties). Alternatively, the violation may constitute an unfair business practice under California law, making the employer susceptible to a lawsuit.