A.B. 1396 is a new California law affecting commission agreement contracts and commission agreements in general. For any employee who is paid a commission, regardless of whether that is all or just a portion of their compensation, A.B. 1396 requires employers to have a written commission agreement.
The agreement must lay out the method for computing the commission and the method by which the commission will be paid. Employers must give a signed copy of the commission agreement to the employee and then also get a signed receipt from the employee acknowledging that they received and agreed to the commission agreement.
In a CER webinar titled “Commission Sales Agreements in California: How to Manage Your Risks and Obligations Under A.B. 1396,” Joel M. Van Parys outlined some guidance for employers regarding A.B. 1396. He then lent his expertise to answer questions from the participants.
Commission Agreement Contracts: Specific Details and Allowed Modifications Under A.B. 1396
Q. In your experience, are these requirements different from what the labor commissioner or courts required before?
A. Yes. Some of these requirements are now more explicit, like giving a copy of the signed agreement to the employee, which was not clearly lined out previously. Practically, however, lots of employers were doing these things already.
Q. Does A.B. 1396 apply to exempt employees who receive a regular salary – well above minimum wage – who also earn commissions as an extra incentive?
A. A.B. 1396 applies to any employee that has commissions as part of their compensation, so yes.
Q. Can you combine the commission agreement and receipt into one document?
A. There’s no advice from the labor commissioner on this, but there’s no outward reason why not. It would be a good idea to have a page break or some other means to set it apart to show separate acknowledgement of the agreement and receipt of such.
Q. Can you add “at will” verbiage to the agreement?
A. Yes, and it is a good idea.
Q. How often can you make changes to agreements and do you have to give prior notice of the change?
A. I have not seen anything that says you have to give prior notice of the change. I’ve seen people make very regular changes and just roll them out. You do, however, need to get the signed copies every time.
Q. In your commission agreement contract, when you state what the commission amount is, are you required to be precise (e.g. a percentage) or can you refer to a schedule that is published from time-to-time?
A. It is fine to refer to a schedule.
Commission Agreement Contract Signatures
Q. What is the employer’s recourse if the employee refuses to sign the acknowledgement?
A. If they refuse to sign, they’re not going to be part of the commission plan because they’re saying they don’t want to be part of the commission agreement. If you’ve hired them for a commissioned position and they don’t want to be part of the commission plan, then it doesn’t make sense for them to even be employed in that position.
Q. Is it okay to get electronic signature from employees? What if they can print out a copy of the plan and their electronic acceptance?
A. There’s been no guidance on this from the labor commissioner. Maybe that will come out in the intervening months. In general it may be best to have a paper signature because the law requires you to give the employee a signed copy and have a signed receipt. If the employee can print the signed version easily that is good, but you should be proactive in giving the agreement back to them. You’re adding more risk if you’re putting the obligation on the employee to print it instead of providing the signed copy.
Q. Who should sign the commission agreement prior to giving it to the employee?
A. You can have anyone who either manages that employee or is knowledgeable about the plan – either works.
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Joel M. Van Parys is an attorney in the Sacramento office of Carothers DiSante & Freudenberger LLP. He represents management in all aspects of the employer-employee relationship, including defense of wage and hour claims, employee misclassifications, wrongful termination, discrimination and harassment, retaliation and unfair competition claims.