As California’s leading employment law firm representing employees only, we are constantly asked about unpaid wages and commissions. Effective January 1, 2013, new laws went into effect governing the requirements companies need to follow in communicating their commission plans to the workers. By definition, a commission is any incentive based on sales. The employer’s plan must be in writing and needs to explain how commissions are calculated and when to be paid. If your old plan expires, it remains in effect until a new one is implemented.
These new laws are contained in Labor Code 2751. The plan must be signed by both employee and employer. Unfortunately, a refusal to sign a pay plan as amended can result in termination, the freezing or nonpayment of any commissions due, or if you have a patient employer, continued employment. While not required by law, we recommend that all electronic signatures comply with the Uniform Electronic Transaction Act (UETA).
If your employer refuses to comply with LC 2751 and you object, you may well have a termination in violation of public policy. This can subject your employer to all of your past and future economic losses, emotional distress and in really outlandish cases, punitive damages. Additionally, failure to pay all wages when due at the end of your employment (including unpaid commissions) may result in a $100 first missed pay period, then $200 per pay period after that until paid (PAGA, Private Attorney General’s Act). You are also entitled to a 30 day waiting time penalty of wages you should have regularly earned. This 30 day starts on the first day you are no longer working there.
Your commissions should be paid pursuant to Labor Code 204, which states that wages earned between the 1st and 15th must be paid between the 16th and 26th of the same month. If earned in the last half, payment is due in the first half of the following month.If you are terminated, Labor Code sections 201-203 probably apply, which means you are owed unpaid commissions (subject to the pay plan) then or at the latest 72 hours later (if you quit). Keep in mind the distinction between voluntary resignations and involuntary ones. If you voluntarily resign, its likely the plan is enforceable. The odds are better challenging an unfair plan when you are fired, because many employees claim the termination was due to the employer trying to weasel out of paying.
There remain unanswered questions, such as where does the law apply, ie, a California-based employee working out of state, or selling by sales online, telephone or e mail; which details of the pay plan must be disclosed, for example, what if the customer returns just part of the order (case law covers this); how to “gap” new and old plans; actual statutory liability under the statute; how will commissions be paid on termination? Does the employer rely on undisclosed documents or sources in calculating pay due as commissionable income? The Department of Industrial Relations permits incorporation if such documents are attached.
Let us discuss your pay plan based on commissions in light of this new law. The law is a veritable goldmine of employee rights (including tyhe ubiquitous pay stub penalties under Labor Code Section 226, et seq., with numerous penalties potentially due for non-compliance by your employer.