When it comes to how you draft your commission agreement contracts in California, do you know how the new law, A.B. 1396, will affect your obligations? In a recent CER webinar, Joel M. Van Parys outlined some guidance for employers regarding A.B. 1396. What does it mean for you?
How Will A.B. 1396 Affect Drafting Commission Agreement Contracts?
A.B. 1396 is a new California law affecting commission agreement contracts and commission agreements in general. It was approved October 7, 2011, and will be effective January 1, 2013. Van Parys outlined the main points:
“Essentially what it does is it lays out some things you have to do whenever you have an employee whose compensation involves commissions. That could be an employee who you have classified as exempt because of the sales commission exemption, or it could just be an employee who’s an hourly employee who also has compensation based upon commission.” Van Parys explained. “You have 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. You must give a signed copy of commission agreement to the employee and then you have to get a receipt from the employee that they received and agreed to the commission agreement.”
If you violate this new law, you’re putting yourself at increased risk of litigation since there is increased focus on the commission details. While there’s nothing built-in to A.B. 1396 that would provide for damages or penalties, there is a risk of litigation for late commissions or wrongfully paid commissions.
Avoiding Litigation with Your Commission Agreement Contracts
Van Parys provided general tips for avoiding violation of A.B. 1396 and thus limiting your risk of litigation:
- Make sure you have a written agreement
- Ensure you have a signed receipt of the agreement
- Give a copy of the signed agreement and the receipt to the employee
Your commission agreement contract should clearly state:
- What the commission is
- How the employee can earn the commission
- How the employer will compute the commission
- How the commission will be paid
- When the commission will be earned
To register for a future webinar, visit CER webinars.
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.
Remember, too, that If the contract expires, but the employee continues to work under its terms, the terms will be presumed to remain in full force and effect until the contract is superseded by a new contract between the parties or the employment is terminated by either party.
Remember, too, that If the contract expires, but the employee continues to work under its terms, the terms will be presumed to remain in full force and effect until the contract is superseded by a new contract between the parties or the employment is terminated by either party.