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California Commissioned Employees Must Have a Written Employment Contract

Cover of the California Labor Code

Effective January 1, 2013, every employee in California who is compensated, entirely or partially, by commission must have a written employment contract that states the method by which commissions will be computed and paid.

Labor Code Section 2571(a) says:

By January 1, 2013, 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.

Section 2571(b) goes on to state that the employer must give a copy of the contract to the employee and must obtain a signed receipt for the contract from the employee.

Commissions are defined, generally, 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”.

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
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  1. 5/22/2013 | 4:06 pm Permalink

    How does this affect employees who were hired prior to Jan 1? For example, a new hire signs an employment contract in November 2012, but does not start employment until after January 1, 2013. Is the company required to provide written employment contract per this Labor Code? Or are you only required to provide this for employees hired after January 1, 2013

    • 5/22/2013 | 4:27 pm Permalink

      Re-emphasizing that this exchange does not establish an attorney-client relationship or constitute legal advice:

      The statute’s applicability is based on when the employment contract is entered into. A contract entered into in 2012 is not covered by the statute.

      That said, it surely is better to have a written agreement to minimize the likelihood of any misunderstandings, irrespective of whether it is required by law. A major source of disagreement – and a potential lawsuit – is ambiguity about when commissions are earned and when they are paid. The likelihood of disagreement can and should be reduced by putting the employment agreement in writing.