📋 Overview: California Commission Disputes
Sales commissions are wages under California law, entitled to all the protections of the Labor Code. California has specific statutes - Labor Code Sections 204.1 and 2751 - that regulate commission payments, require written commission agreements, and protect employees from improper chargebacks and clawbacks.
What Are Commissions Under California Law?
A commission is compensation paid for services rendered in the sale of the employer's property or services, based proportionally on the amount or value of the sales. Importantly, commissions do not include:
True Commissions
Compensation directly tied to sales made or services sold, calculated as a percentage or fixed amount per sale
NOT Commissions
Short-term productivity bonuses, profit-sharing, or bonus plans not tied to specific sales
Common Commission Disputes
Situations Leading to Commission Claims
- Unpaid earned commissions - Employer refuses to pay commissions on completed sales
- Improper chargebacks - Deducting commissions for customer returns or cancellations beyond what the agreement allows
- Changed commission rates - Retroactively reducing commission rates on pending deals
- Termination before payment - Refusing to pay commissions because employee was terminated before payment date
- No written agreement - Employer denies commission terms without any written documentation
- Unclear or ambiguous terms - Disputes over when commissions are "earned" under vague agreements
- Pipeline deals - Refusing to pay commissions on deals in progress when employee leaves
What You Can Recover
A successful commission dispute claim can include:
- Unpaid commissions - The full amount of commissions earned but not paid
- Waiting time penalties - Up to 30 days of daily wages if final commissions are not paid on time (LC 203)
- Interest - 10% per year on amounts owed
- Wage statement penalties - $50-$100 per violation, up to $4,000 (LC 226)
- Attorney fees - Recoverable under LC 218.5 and LC 1194
📝 Written Commission Agreement Requirement
California Labor Code Section 2751 requires employers to provide employees with a written commission agreement. This is not optional - it is a legal mandate designed to protect sales employees from disputes over compensation terms.
Labor Code Section 2751 - Written Contract Required
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 involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid. The employer shall give a signed copy of the contract to every employee who is a party to the contract.
What the Agreement Must Include
Commission Rate/Formula
The specific percentage, flat amount per sale, or calculation method for determining commission amounts
When Commissions Are Earned
The specific event or milestone that triggers the right to receive the commission (e.g., sale closed, payment received)
When Commissions Are Paid
The timing of commission payments - which pay period or how long after the commission is earned
Chargeback/Clawback Rules
Any circumstances under which previously paid commissions may be deducted or recovered
What Happens Without a Written Agreement?
If your employer failed to provide a written commission agreement as required by LC 2751:
- Employee-favorable interpretation - Ambiguities are construed in favor of the employee
- Employee's reasonable understanding - Commission terms may be based on what was verbally communicated or what the employee reasonably understood
- Labor Code penalties - The employer has violated LC 2751 and may face additional liability
- Burden shifts to employer - Employer must prove the commission terms they claim are accurate
Employee's Copy Requirement
The employer must provide the employee with a signed copy of the commission agreement. When the agreement changes, a new signed copy must be provided. The employee should sign a receipt acknowledging they received a copy.
Electronic Agreements Are Valid
Under California law, electronic signatures and digital copies satisfy the written agreement requirement, provided the employee can access and retain a copy. Email confirmations of commission terms can serve as the written agreement.
💰 When Are Commissions "Earned"?
One of the most contested issues in commission disputes is determining exactly when a commission becomes "earned" and therefore owed to the employee. This determination affects what happens when an employee leaves before payment.
Labor Code Section 204.1 - Payment Timing
Commission wages are earned when the employee has perfected the sale or otherwise met the conditions of the commission agreement. Commissions must be paid on the regular payday for the pay period in which they are earned, unless the commission cannot reasonably be calculated by that date.
Common "Earned" Triggers in Commission Agreements
Sale Completed
Commission earned when the sale closes or contract is signed - regardless of when payment is received
Customer Payment Received
Commission earned only when the employer actually collects payment from the customer
Service Delivered
Commission earned when the product ships or service is performed
Multiple Milestones
Commission earned in stages - e.g., 50% at contract signing, 50% at delivery
Important: Once Earned, Cannot Be Forfeited
Under California law, once a commission is earned it becomes a vested wage. The employer cannot require forfeiture of earned commissions even if:
- The employee quits or is terminated before the payment date
- The employee does not stay employed for a specified period
- The employer has a policy requiring continued employment for payment
See Koehl v. Verio, Inc. (2006) - California courts consistently invalidate commission forfeiture clauses.
Commissions at Termination
When an employee's employment ends (whether by resignation or termination), all earned commissions become due as final wages under Labor Code Sections 201-202:
- Terminated employees: Earned commissions due immediately
- Resigned with 72+ hours notice: Earned commissions due on last day
- Resigned without notice: Earned commissions due within 72 hours
Late payment of earned commissions triggers waiting time penalties under LC 203.
Pipeline Deals and Post-Termination Commissions
What about deals that are in progress when an employee leaves? This depends on the commission agreement:
- If the agreement says commissions are earned at contract signing, and the employee signed the contract before leaving, the commission is owed even if the deal closes later
- If the agreement says commissions are earned at customer payment, and payment occurs after termination, the employee may still be entitled to the commission if they "substantially performed" the work
- Agreements that require continued employment to receive commissions on completed sales are generally unenforceable in California
⚠ Chargebacks and Clawbacks
A chargeback (or clawback) occurs when an employer deducts previously paid commissions from an employee's future earnings. California law places strict limits on when and how chargebacks are permitted.
When Are Chargebacks Allowed?
Generally Allowed
Chargebacks for customer cancellations or returns IF clearly stated in a written commission agreement signed by the employee
Generally Prohibited
Chargebacks that reduce compensation below minimum wage for hours worked, or chargebacks not clearly disclosed in writing
Legal Requirements for Valid Chargebacks
- Written agreement: The chargeback policy must be clearly stated in the written commission agreement before the employee earned the commission
- Reasonable basis: The chargeback must be tied to a legitimate business reason (e.g., customer refund) not just employer dissatisfaction
- Time limits: Chargebacks typically must be applied within a reasonable time of the triggering event
- No minimum wage violations: Chargebacks cannot reduce total compensation below minimum wage for hours worked
- Employee fault: Ideally, the chargeback should relate to circumstances within the employee's control
Improper Chargeback Red Flags
- Chargeback policy not disclosed in writing before commissions were earned
- Chargebacks applied to sales that closed months or years ago
- Chargebacks for reasons not related to customer cancellation (e.g., employer decided to lower commission rate)
- Chargebacks that drop total pay below minimum wage
- Chargebacks for customer issues outside the employee's control
- Different chargeback rules applied to different employees arbitrarily
Chargebacks After Termination
Limited Recovery from Former Employees
Once employment ends, employers have very limited ability to recover previously paid commissions. While the employer might attempt to:
- Deduct from the final paycheck (limited to clearly authorized deductions)
- Sue for overpayment (difficult to prove and rarely successful)
California courts disfavor post-termination clawbacks. An employer cannot refuse to pay earned final wages because of disputed chargebacks - they must pay and pursue the dispute separately.
📈 Waiting Time Penalties on Commissions
Because commissions are wages under California law, the powerful waiting time penalty provisions of Labor Code Section 203 apply when employers fail to timely pay earned commissions upon termination.
Labor Code Section 203 - Waiting Time Penalties
If an employer willfully fails to pay wages due upon termination, the employee's wages continue as a penalty from the due date at the same daily rate until paid, for up to 30 days.
How Waiting Time Penalties Apply to Commissions
When earned commissions are not paid on time at termination:
- The employee's daily wage rate includes their regular pay plus average daily commission earnings
- Penalties accrue for each day the commissions remain unpaid, up to 30 days
- The penalty can quickly exceed the original commission amount
Example: Unpaid Commissions with Waiting Time Penalty
Sales rep earning $5,000/month base + average $7,000/month commissions. Terminated and earned commissions of $15,000 not paid. 30+ days have passed.
*Plus attorney fees if litigation is required
Commission Penalties Can Be Substantial
Because commission employees often have higher total compensation, their waiting time penalties are correspondingly higher. A sales executive earning $200,000/year could accrue over $16,000 in waiting time penalties alone within 30 days.
🖩 Commission + Waiting Time Penalty Calculator
Use this calculator to estimate your total claim including unpaid commissions and waiting time penalties under California Labor Code Section 203.
Calculate Your Claim
Enter your commission and compensation information to calculate your claim.
📄 Sample Demand Letter
Use these paragraphs to build your commission dispute demand letter. Customize with your specific facts and commission details.
1. [Customer/Deal Name] - Sale closed [DATE] - Commission due: $[AMOUNT]
2. [Customer/Deal Name] - Sale closed [DATE] - Commission due: $[AMOUNT]
3. [Additional deals as applicable]
Total unpaid commissions: $[TOTAL]
These commissions were earned under the terms of our commission agreement because [explain how the triggering condition was met].
Because commissions are wages under California law, your failure to pay earned commissions upon my separation from employment on [DATE] triggers waiting time penalties under Labor Code Section 203.
Unpaid Commissions: $[AMOUNT]
Waiting Time Penalties (LC 203): $[AMOUNT]
Interest at 10% per annum: $[AMOUNT]
TOTAL AMOUNT DUE: $[TOTAL]
If I do not receive full payment by this date, I will pursue all available legal remedies without further notice, including: (1) filing a wage claim with the California Labor Commissioner; (2) filing a civil lawsuit; and (3) seeking recovery of the full amount owed plus all applicable penalties, interest, and attorney fees as provided by California Labor Code Sections 203, 218.5, and 1194.
I am prepared to resolve this matter promptly upon full payment. Please contact me at [EMAIL/PHONE] to arrange payment.
[Your Address]
[City, CA ZIP]
[Your Email]
[Your Phone]
[DATE]
VIA CERTIFIED MAIL, RETURN RECEIPT REQUESTED
AND VIA EMAIL TO: [employer email]
[EMPLOYER/COMPANY NAME]
Attn: [Owner/HR Director/Sales Operations]
[Company Address]
[City, CA ZIP]
Re: Demand for Unpaid Commissions - California Labor Code Sections 204.1, 2751, and 203
Dear [EMPLOYER NAME]:
I am writing to formally demand payment of earned sales commissions owed to me from my employment with [COMPANY NAME].
EMPLOYMENT BACKGROUND
I was employed as a [JOB TITLE] from [START DATE] to [END DATE]. My compensation consisted of a base salary of $[AMOUNT] per [month/year] plus commissions at [RATE/STRUCTURE]. Under our agreement, commissions were earned when [triggering event].
UNPAID COMMISSIONS
At the time of my separation, I had earned commissions on the following sales that remain unpaid:
1. [Customer/Deal] - Closed [DATE] - Commission: $[AMOUNT]
2. [Customer/Deal] - Closed [DATE] - Commission: $[AMOUNT]
[Additional deals]
Total Unpaid Commissions: $[AMOUNT]
LEGAL BASIS
Under California Labor Code Section 204.1, commission wages are earned when the employee meets the conditions of the commission agreement. Commissions are wages under California law. Your failure to pay these earned commissions upon my termination on [DATE] violates Labor Code Sections 201-202 and triggers waiting time penalties under Section 203.
WAITING TIME PENALTIES
My total monthly compensation was approximately $[AMOUNT], yielding a daily rate of $[RATE]. As of today, [X] days have passed since payment was due.
TOTAL DEMAND
Unpaid Commissions: $[AMOUNT]
Waiting Time Penalties (30 days max): $[AMOUNT]
Interest: $[AMOUNT]
TOTAL: $[AMOUNT]
DEADLINE
I demand payment within fourteen (14) days - by [DATE]. If payment is not received, I will pursue all legal remedies including Labor Commissioner claims and civil litigation seeking the full amount plus attorney fees.
Sincerely,
_________________________
[YOUR NAME]
Enclosures:
- Commission agreement (if available)
- Sales records/deal documentation
- Pay stubs showing commission history
- Calculation worksheet
👥 When to Hire a Commission Attorney
Commission disputes can be straightforward or highly complex depending on the commission plan and amounts involved.
Handle It Yourself When:
✓ Clear Written Agreement
You have a written commission plan that clearly shows how commissions are earned and when they're due.
✓ Simple Calculation
The unpaid amount is straightforward to calculate from your sales records and the commission rate.
✓ Small Claims Eligible
Your total claim (commissions + waiting time penalties) falls under $12,500.
✓ Employer Acknowledges Debt
The employer admits owing commissions but claims cash flow or other issues.
Hire an Attorney When:
⚠ Disputed Commission Plan
No written agreement exists, or the employer interprets the plan differently than you - proving what was "agreed" requires evidence.
⚠ Large Amounts Owed
You're owed $10,000+ in commissions - the complexity and stakes justify representation.
⚠ Chargeback Disputes
The employer is clawing back already-paid commissions - these chargebacks may violate California law.
⚠ Post-Termination Disputes
Employer claims you forfeited commissions by leaving or that deals "fell through" after your departure.
⚠ Complex Payment Structures
Draws, accelerators, cliffs, vesting schedules, or team splits make calculation complex.
⚠ Pattern of Non-Payment
Other salespeople experienced similar issues - class action or PAGA may be appropriate.
Benefits of Attorney Representation
- Contingency fees: Many employment attorneys take commission cases with no upfront cost
- Fee-shifting: Under Labor Code 218.5, prevailing employees recover attorney fees
- Waiting time penalties: Attorneys add LC 203 penalties (up to 30 days wages) to maximize recovery
- Commission plan analysis: Expert interpretation of ambiguous commission agreements
- Chargeback defense: Legal arguments against improper commission clawbacks
- Litigation leverage: Represented claims settle faster and for more
Not Sure If You Need an Attorney?
Take our free assessment to get a personalized recommendation based on your commission dispute.
Take Free AssessmentContingency Representation Available
Many employment attorneys work on contingency for commission disputes. Because California law allows prevailing employees to recover attorney fees, many lawyers take these cases with no upfront cost to you.
Need Help With Your Commission Claim?
Get a 30-minute strategy session to evaluate your commission dispute and discuss your options for recovery.
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Contact Information
Email: owner@terms.law
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