California Labor Code 2751 LC requires employers to put commission-based employment contracts in writing. These contracts remain enforceable as long as the parties to the contract continue operating under its terms – even after the contract expires.
The law requires that employment contracts that involve commission payments be in writing. It does not matter if the worker is also being paid wages in addition to the commissions.
Every employee must be given a signed copy of this employment contract. If the employer and employee continue to work under the terms of the contract after it expires, California law presumes the contract to be enforceable until:
- one of the parties ends the contract, or
- the contract is superseded by another contract.
Note that commissions do not include the following four types of remuneration:
- bonuses based on short-term productivity (common in retail);
- short-term, changeable incentives that increase payments in the contract;
- Profit-sharing plans (unless the employer offered to pay a fixed percentage of sales or profits as compensation); and
- Bonuses (unless the employer offered to pay a fixed percentage of sales or profits as compensation)
Labor Code 2751 requires that California employment contracts involving commissions be in writing.
See our related articles, How often do California employers have to pay sales commissions? and California law on commission pay after termination.
Legal References
- California Labor Code 2751 LC – Contract involving commissions; Duties of employer; Terms of expired contract.
The full text of the statute reads as follows:
2751. (a) 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.
(b) The employer shall give a signed copy of the contract to every employee who is a party thereto and shall obtain a signed receipt for the contract from each employee. In the case of a contract that expires and where the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party.
(c) As used in this section, “commissions” has the meaning set forth in Section 204.1. For purposes of this section only, “commission” does not include any of the following:
(1) Short-term productivity bonuses such as are paid to retail clerks.
(2) Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract.
(3) Bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed.
See also: Lett v. Paymentech, Inc. (N.D. Cal. 1999) 81 F.Supp.2d 992.