On October 7, 2011, Governor Brown signed AB 1396. The new law requires all employers doing business in California to draft written contracts for any agreements with employees that involve commissions as a method of payment for services. Commission wages are defined as compensation paid to any person for services rendered in the sale of an employer’s property or services and based proportionately upon the amount or value thereof.

               The deadline for employers to reduce all commission agreements to writing is January 1, 2013. In addition, employers must provide a signed copy of the contract to every employee covered by the commission agreement and obtain a signed receipt for the contract from each employee. There are no penalties associated with a violation of the new statute but presumably it could be a basis for suit under California’s Private Attorneys General Act (PAGA) and Unfair Competition Law.  

In addition to the new law, California already regulates the payment of commissions, the calculation of commissions and what happens with a commission upon termination/resignation. Ultimately, employers must draft written commission agreements by the deadline above and carefully review the terms of the documents to ensure they are clear and lawful.