📋 Overview: California Commission Claims
Commission-based compensation is common in sales, real estate, finance, and many other industries. California law provides strong protections for employees who earn commissions, requiring written agreements, timely payment, and limiting when employers can claw back earned commissions.
What Are Commissions Under California Law?
Under Labor Code 204.1, a "commission" means compensation paid for services rendered in the sale of the employer's property or services that is based proportionally on the amount or value of sales. Key distinctions:
True Commissions
Pay tied directly to sales results - percentage of sales price, per-unit sold, tiered bonuses based on volume
Bonuses (Different Rules)
Discretionary payments not tied directly to specific sales - may have different legal treatment
Draws Against Commission
Advances on future commissions - recoverable vs. non-recoverable draws have different implications
Common Commission Disputes
Withheld Commissions
Employer refuses to pay commissions that were clearly earned under the agreement
Improper Chargebacks
Employer claws back commissions when customer cancels, returns, or defaults without proper agreement language
Post-Termination Disputes
Employer refuses to pay commissions on deals closed before termination or pending deals
No Written Agreement
Employer never provided required written commission plan, leaving disputes about what was agreed
Critical: Earned vs. Unearned Commissions
The most important question in commission disputes is: When was the commission "earned"?
- At contract signing? If so, commission is owed even if deal later falls through
- At customer payment? If so, commission may not be owed until money is received
- At delivery/completion? If so, timing depends on when goods/services are provided
The written commission agreement controls - which is why California requires one!
Good News: Strong Employee Protections
California courts generally interpret commission agreements in favor of employees. Ambiguous language is construed against the employer who drafted it. And if no written agreement exists, courts often find commissions were earned at the time of sale.
💼 For Employers: Responding to Commission Claims
If you've received a commission dispute demand letter, understanding your obligations and exposure is critical.
Take Commission Claims Seriously
Commission disputes can be expensive. Beyond the base amount, you face waiting time penalties (up to 30 days pay), interest, and potential attorney fee liability. Many cases that start as $10,000 disputes become $50,000+ claims with penalties.
Immediate Steps for Employers
- Locate the commission agreement - If you don't have a signed written agreement, you have a significant problem under LC 2751
- Review the exact language - What triggers commission earning? What chargebacks are permitted?
- Calculate what's actually owed - Apply the agreement terms objectively
- Document your position - Prepare clear explanation if you believe no commission is due
- Respond promptly - Silence increases penalty exposure
Common Employer Defenses
Commission Not Yet Earned
Under the written agreement, triggering condition hasn't occurred (e.g., customer hasn't paid)
Valid Chargeback
Commission was properly reversed per agreement terms when customer cancelled/returned
Recoverable Draw
Employee owes repayment of unearned draws that exceeded actual commissions
Good Faith Dispute
Genuine uncertainty about commission calculation may negate "willful" finding for waiting time penalties
Missing Written Agreement = Major Problem
If you don't have a signed LC 2751 compliant written commission plan, courts will likely:
- Find commissions were earned at time of sale (most employee-favorable interpretation)
- Disallow chargebacks that weren't explicitly agreed to in writing
- Award waiting time penalties since you can't prove good faith dispute
⚖ Legal Basis: California Commission Law
California has specific statutes governing commission compensation that provide significant employee protections.
Primary California Statutes
Labor Code Section 2751 - Written Commission Agreement Required
Employers must provide employees a written contract describing how commissions will be computed and paid. The contract must be signed by the employer and employee, and the employer must provide the employee a copy. Failure to provide a written agreement doesn't void the commission - it typically means courts interpret the arrangement favorably to the employee.
Labor Code Section 204.1 - Definition of Commission Wages
Defines "commission wages" as compensation paid for services rendered in the sale of the employer's property or services, based proportionally on sales amount or value. Establishes that commission wages are earned when the conditions of the commission agreement are satisfied, not when paid.
Labor Code Section 201-203 - Final Pay and Waiting Time Penalties
All earned commissions must be paid immediately upon termination (if fired) or within 72 hours (if quit). Waiting time penalties of up to 30 days wages apply for willful failure to pay. This is huge in commission cases because the daily wage rate is often high.
Labor Code Section 221 - Prohibition on Wage Deductions
Employers cannot collect or receive from employees any part of wages previously paid. This limits chargeback rights - employers generally cannot deduct from future wages to recover overpaid commissions unless specifically agreed in writing and limited circumstances apply.
Labor Code Section 2922 - At-Will Employment Limitation
While employment is generally at-will, terminating an employee specifically to avoid paying commissions on pending deals may constitute wrongful termination in violation of public policy and can support additional claims.
Key Case Law
Koehl v. Verio (2006)
Established that once a commission is "earned" under the commission agreement, it becomes a vested wage that cannot be forfeited. The triggering event in the agreement controls when the commission is earned.
Steinhebel v. Los Angeles Times (2005)
Held that commission agreements must be interpreted in light of the reasonable expectations of the parties. Ambiguities are resolved against the employer who drafted the agreement.
Ellis v. McKinnon Broadcasting (1993)
Established that an employer cannot condition payment of earned commissions on the employee remaining employed. Once earned, commissions must be paid regardless of subsequent termination.
Chargebacks: What's Legal?
Employers often want to "charge back" commissions when deals fall through. California law significantly limits this:
Generally Permitted Chargebacks
- When explicitly stated in written agreement
- When commission wasn't yet "earned" (customer hadn't paid)
- For employee fraud or material misrepresentation
- When applied to future commissions, not base wages
Generally Prohibited Chargebacks
- Not specified in written agreement
- Applied to already-earned commissions
- Deducted from base hourly/salary wages
- Applied after employment ends
- For events beyond employee's control
📂 Evidence Checklist: Building Your Commission Claim
Strong documentation is essential for commission disputes. Gather these materials before sending your demand.
- Commission agreement/plan - The written contract describing how commissions are calculated and when earned
- Offer letter - Initial employment terms, especially if commission structure was described
- Commission statements - Monthly/quarterly statements showing sales, commission calculations, chargebacks
- Pay stubs - Records of actual commission payments received
- Sales records - Documentation of your sales, deal values, customer contracts
- CRM/sales database exports - If you have access, export your sales pipeline and closed deals
- Emails about commission calculations - Any communications discussing how commissions work
- Manager communications - Emails/texts promising commissions or explaining disputes
- Customer contracts you closed - Proof of deals you brought in
- Commission plan changes - Documentation of any mid-year plan modifications
- Chargeback notices - Any documentation of chargebacks applied to your account
- Termination letter - If applicable, documentation of how/when employment ended
Pro Tip: Calculate Your Own Commission
Before sending your demand, create a detailed spreadsheet showing:
- Each deal/sale you're claiming commission on
- Deal value and your commission percentage
- When the commission was "earned" under the agreement
- What you were paid vs. what you're owed
- Any chargebacks you're disputing
This detailed analysis strengthens your claim and shows you've done the work.
No Written Agreement? Document Everything Else
If your employer never provided a written commission plan (which violates LC 2751), gather:
- Emails discussing commission rates or structure
- Offer letter mentioning commission opportunity
- Historical commission payments showing the pattern
- Coworker testimony about commission practices
- Any documents from hiring process mentioning commissions
💰 Calculating Your Commission Damages
California law provides multiple remedies for unpaid commissions, and penalties can quickly exceed the base amount owed.
Components of Your Claim
| Damage Type | How to Calculate |
|---|---|
| Unpaid Commissions | Sum of all earned commissions not paid - apply commission agreement terms to your sales |
| Improper Chargebacks | Commissions deducted without proper authority - chargebacks not permitted by written agreement |
| Waiting Time Penalties (LC 203) | Daily wage rate x days late (max 30 days) - for terminated employees only |
| Interest | 10% per year on unpaid amounts from date due (Civil Code 3289) |
| Attorney Fees | Recoverable under LC 218.5 if you prevail on wage claim |
| Wage Statement Penalties (LC 226) | $50 first violation, $100 each subsequent, up to $4,000 if commission statements were inaccurate |
Waiting Time Penalty for Commission Employees
High Earners = High Penalties
Waiting time penalties are based on your daily rate of pay. For commission employees, this is calculated based on your regular earnings. If you earned $150,000/year in commissions:
$150,000 / 52 weeks / 5 days = $577/day
Maximum penalty: $577 x 30 = $17,310
Sample Calculation
Example: Sales Rep Commission Claim
Sales rep earning $120,000/year, terminated, employer refuses to pay final quarter commissions and applied improper chargebacks.
*Does not include attorney fees recoverable if case goes to litigation
Post-Termination Commission Claims
Special rules apply when you're claiming commissions after leaving employment:
Clearly Owed
Commissions on deals that fully closed before your termination - these are clearly earned and owed
Pipeline Deals
Deals you worked that closed after you left - depends on agreement language about "procuring cause"
Typically Not Owed
Commissions on deals that hadn't yet met earning triggers when you left (unless agreement says otherwise)
📝 Sample Demand Letter Language
Use these paragraphs as building blocks for your commission demand letter. Customize with your specific facts.
1. [Customer/Deal Name] - Closed [DATE] - Deal value $[AMOUNT] - Commission owed: $[AMOUNT]
2. [Customer/Deal Name] - Closed [DATE] - Deal value $[AMOUNT] - Commission owed: $[AMOUNT]
3. [Customer/Deal Name] - Closed [DATE] - Deal value $[AMOUNT] - Commission owed: $[AMOUNT]
Total unpaid commissions: $[TOTAL AMOUNT]
1. [Customer/Deal Name] - Commission of $[AMOUNT] paid on [DATE], charged back on [DATE]
These chargebacks are improper because [REASON - e.g., "the commission agreement does not authorize chargebacks for customer cancellations" or "the commission was fully earned at contract signing regardless of subsequent customer default" or "the chargeback was applied after my termination, which is not permitted under California law"]. Under Labor Code Section 221, an employer cannot collect or receive wages previously paid. Once my commissions were earned and paid, you cannot lawfully reclaim them.
Unpaid commissions: $[AMOUNT]
Improper chargebacks: $[AMOUNT]
Waiting time penalties: $[AMOUNT]
Interest at 10%: $[AMOUNT]
TOTAL DEMAND: $[TOTAL]
I demand payment of this amount within 14 days of the date of this letter.
- Filing a wage claim with the California Labor Commissioner (DLSE)
- Filing a civil lawsuit for unpaid wages, penalties, interest, and attorney fees
- Reporting your Labor Code violations to appropriate enforcement agencies
Please note that under Labor Code Section 218.5, I am entitled to recover reasonable attorney fees if I prevail on this wage claim. Additionally, waiting time penalties continue to accrue (up to 30 days) until full payment is made. Prompt resolution is in both parties' interest.
Please remit payment to [YOUR ADDRESS] or contact me at [EMAIL/PHONE] to discuss resolution.
🚀 Next Steps After Sending Your Demand
Here's what to expect after you send your commission demand letter and how to proceed based on the response.
Expected Timeline
Days 1-7
Employer receives letter, reviews with HR/legal, pulls commission records and agreement
Days 7-14
Employer responds - may pay in full, make partial offer, request information, or dispute claim
Days 14-30
Negotiation period if needed - discuss specific deals, chargeback disputes, documentation
Day 30+
If no resolution, proceed to formal remedies - DLSE complaint or civil lawsuit
If They Pay
Make sure the payment includes:
- All unpaid base commissions
- Reversal of improper chargebacks
- Waiting time penalties (if employment ended)
- Interest on late amounts
Get payment via certified check or wire transfer. Keep records of everything.
If They Dispute or Don't Pay
- File with the Labor Commissioner (DLSE)
Free process, no lawyer needed. DLSE investigates and can hold a hearing (Berman hearing). Commission disputes are common at DLSE. File online at dir.ca.gov.
- Small Claims Court
Fast and inexpensive for claims up to $12,500. No lawyers allowed. Good for straightforward disputes with clear documentation.
- Civil Lawsuit (Superior Court)
For larger claims or complex disputes. Can recover attorney fees under LC 218.5. Many employment attorneys take commission cases on contingency.
Statute of Limitations
For unpaid commissions:
- Written contract: 4 years from when commission was due
- No written contract: 2 years (oral contract) or 3 years (statutory wage claim)
- Waiting time penalties: 3 years from termination date
Don't wait too long - act promptly to preserve your rights.
California Resources
- DLSE (Labor Commissioner): dir.ca.gov/dlse - File wage claims online
- DLSE Hotline: 1-844-522-6734 - Free information about your rights
- California Courts Self-Help: courts.ca.gov/selfhelp - Court procedures and forms
- Legal Aid: lawhelpca.org - Free legal help for qualifying individuals
⚖ Attorney Services
Commission disputes can be complex, especially when dealing with ambiguous agreements, chargeback disputes, or post-termination claims. Professional legal assistance can help maximize your recovery.
When to Consider an Attorney
Large Commission Claims
Claims over $25,000 often justify attorney involvement given potential fee recovery
Complex Agreements
Multi-tiered plans, accelerators, clawback provisions requiring interpretation
Disputed Facts
Employer contests which deals you closed or claims chargebacks are valid
No Written Agreement
Need to establish commission terms through other evidence
Schedule a Consultation
Get a 30-minute strategy session to evaluate your commission claim, discuss the strength of your evidence, and plan your next steps.
Book Consultation - $240/hr Email: owner@terms.lawServices Offered
| Service | Description | Price |
|---|---|---|
| Strategy Consultation | 30-minute call to evaluate your claim, review documents, and discuss options | $240/hr |
| Demand Letter Drafting | Professional demand letter with legal citations, damage calculations, and strategic positioning | $450 flat fee |
| DLSE Filing Assistance | Help preparing and filing your Labor Commissioner complaint | $240/hr |
| Full Representation | Handle negotiations, DLSE hearing, or civil litigation through resolution | Contingency available |
Attorney Fees Are Recoverable
Under Labor Code Section 218.5, prevailing employees in wage disputes can recover reasonable attorney fees from the employer. This means your attorney costs may ultimately be paid by the employer, and many attorneys take commission cases on contingency for this reason.
Contact Information
Email: owner@terms.law
Consultation Rate: $240/hour
Flat Fee Demand Letter: $450
Book Online: calendly.com/sergei-tokmakov/30-minute-zoom-meeting