Commission and Bonus Disputes
Commissions are wages in California, and once earned they cannot be reduced, withheld, or forfeited.
Commissions are wages under California law. Once earned, they belong to the employee and cannot be forfeited, reduced, or withheld because the employee resigned, was terminated, or fell out of favor. Bonuses are treated differently depending on whether they were promised in exchange for defined performance or left entirely to the employer’s discretion.
The Written Agreement Requirement
Labor Code section 2751 requires that any employment involving commissions be documented in a written contract. The agreement must set out the method by which commissions are computed and paid. The employer must give the employee a signed copy and obtain a signed receipt for it. If an agreement expires and both parties continue operating under its terms, those terms are presumed to remain in effect until a new agreement replaces them or employment ends.
Where no written agreement exists, or where its terms are ambiguous, the employer is at a disadvantage. It cannot rely on unwritten practices or after the fact interpretations to delay or reduce a payout.
Case Results
When a Commission Is Earned
The agreement defines the point at which a commission is earned, and that point is not the same as the date it is paid. An employer may lawfully condition earning on events such as customer payment or the close of a return period, provided the condition appears in the written plan. Once the stated conditions are met, the commission is a vested wage and cannot be taken back.
The Labor Commissioner’s position is that a commission is not payable until the employer has the information needed to calculate it. That principle affects timing, not entitlement, and it does not allow an employer to postpone payment indefinitely.
How Bonuses Are Treated
A bonus promised in exchange for specific, measurable performance becomes an earned wage once the conditions are satisfied, even if the employer later describes it as discretionary. A genuinely discretionary bonus, awarded without any promise or formula, generally is not. Nondiscretionary bonuses also have to be included in the regular rate used to calculate overtime, which means an unpaid bonus can produce an unpaid overtime claim at the same time.
Common Disputes
- No signed commission agreement in place
- Commissions withheld after a resignation or termination
- Chargebacks applied for reasons not stated in the plan
- Deductions taken for returns, cancellations, or unpaid invoices without a written basis
- A plan changed retroactively to reduce the payout on a closed deal
- Quotas, accounts, or territories reassigned after a sale was made
- Commissions left out of the final paycheck
- Commission earnings omitted from wage statements
What Employers May Not Deduct
An employer may not shift the ordinary cost of doing business onto a salesperson. Deductions for breakage, cash shortages, unpaid customer invoices, or general business losses are not permitted, even where the commission plan appears to authorize them. A chargeback tied to a specific reversed sale is treated differently from a deduction that simply reallocates business risk to the employee.
Recovery
Earned commissions are payable at separation on the same schedule as other final wages, subject to the rule that they need not be paid until they can be calculated. A willful failure to pay can support waiting time penalties of up to 30 days of wages. Omitting commissions from a wage statement can support separate penalties under Labor Code section 226.
Claims may be filed with the Labor Commissioner’s Office or brought in court. The deadline is generally three years for statutory wage claims, two years for an oral agreement, and four years for a written contract.
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