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First “Commission” Agreements Must Be in Writing. Now the Definition of “Commissions” is Limited Under Labor Code § 2751

Posted in Labor Law, New Legislation and Regulations, Wage & Hour

Last year, California revised Labor Code section 2751 such that any employment agreement involving “commission” payments would have to be put into writing with a signed copy of the agreement be given to the employee. Those revisions go into effect on January 1, 2013.

This year, AB 2675 provides the definition of “commissions” in Section 2751. Well, more precisely the amendments actually tell us what the definition of “commissions” does not include. The amendment to Section 2751 states that the term “commissions” does not include “[t]emporary, variable incentive payments that increase, but do not decrease, payment under the written contract.”

Impact on California Employers

Sales representatives, by their very nature, receive, in whole or in part, compensation from commissions. These commissions are often adjusted based upon the ups and downs of consumer spending. Sometimes, California employers have temporary incentivized salespersons by increasing the percentage of commissions on certain items for certain amounts of time. At first blush employers may feel this type of negative definition of “commissions” is a bad thing. However, what the new amendments to Labor Code Section 2751 do is to make it clear that these temporary incentives are not “commissions.” As a result, one could certainly read this new legislation to mean that the temporary sales incentives do not trigger the need for a completely updated written commission agreement. Since this is a new law, there is little case authority on the subject and it is unknown how the courts will interpret the term “commissions.” Writings are still the safest way to protect one’s self, even if the temporary incentive is a clearly defined addendum to the written commission agreement which clearly spells out the length of time it will last and the terms of the temporary change.