On October 7, Governor Brown signed into law AB 1396 which amends Labor Code section 2751 to require that all employers provide a written contract to employees who are paid commission.  The new law will be effective January 1, 2012, and gives employers until January 1, 2013, to enter into the written contracts, which must set forth the method by which the commissions shall be computed and paid. 

Labor Code section 2751 defines the term “commissions" as having the same meaning as Labor Code section 204.1, which is “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.”  However, the term "commissions" does not include short-term productivity bonuses, such as are paid to retail clerks; and 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.

Employers are required to give a signed copy of the contract to the employee and keep a signed receipt of the contract.  The law also clarifies that when an employment contract expires but the parties continue to work under the terms of the expired contract, the contract terms are presumed to remain effective.  AB 1396 additionally repeals Labor Code section 2752, so employers are now no longer liable to an employee in a civil action for triple damages when an employer does not provide a written commission contract.

As a result of AB 1396, employers are now required to have written contract agreements for all commissioned employees, whether or not they are paid in whole or partially with commissions.  Failure to comply with Section 2751 could result in a civil liability, including penalties, for non-compliance.

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Jennifer Adkins Tomlin is an associate at Mullen & Henzell.  She practices with the Employment & Labor Group and the Civil Litigation Group.  Jennifer can be contacted at jtomlin@mullenlaw.com or (805) 966-1501.

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This publication is for general informational purposes only and it is not intended to be a comprehensive summary of recent developments in the law, nor is it intended to constitute legal advice or to determine your specific responsibilities under the law.  You should consult your own legal counsel for specific legal advice pertaining to your specific situation.