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California employers — Get those commission agreements in writing!

November 17, 2011

AB 1396, one of many new employment laws approved last month by Governor Jerry Brown, imposes a new requirement on employers paying commissions — get it in writing!

The law, which by its terms becomes effective on January 1, 2013, states “whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.” An executed copy of the agreement must be provided to each affected employee, and the employer must get a signed receipt from the employee. “Commission” is broadly defined 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.”

What happens to employers who don’t comply? No penalties are specified in the law for violations. But not so fast. Labor Code violations can result in penalties under California’s Private Attorneys General Act (PAGA, aka “Sue Your Boss Act”). They may also constitute unfair business practices. Either way, a non-compliant employer can be looking down a pretty unattractive road.

For most cautious employers, complying with AB 1396 should be relatively easy. That’s because most cautious employers’ even more cautious employment counsel have been telling them to use written commission agreements for years. This is a law most likely to trip up smaller or mid-sized businesses without dedicated HR staff. In other words, the ones least likely to be able to afford a regulatory audit or a class action from the plaintiff’s bar.

So make your first New Years resolution for 2013 today. Get those commission agreements in writing.

  1. Thank you for making the effort and spreading this information with all of us. It was indeed very useful and informative while being straight forward and to the point.

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  1. Time to revise those handbooks! « California workplace law blog

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