California Labor Code § 2751 LC requires employers to put commission-based employment contracts in writing. They must also spell out what services you will render, how you will be paid, and how the commission is calculated.
Frequently-Asked-Questions
Does LC 2751 still apply if I am also getting wages?
Yes. Any commission-based employment contract must be in writing even if you are also getting paid wages in addition to commissions.
Can I waive the requirement that the contract be in writing?
No. California law requires all commission-based employment contracts be in writing. Having any employment contract in writing is extremely helpful in the event there are disputes between you and your employer.
There was a recent case where IBM employees alleged the company went back on its promise not to cap commissions after failing to provide its sales representatives with written employment contracts. This LC 2751 violation – among other violations – led to a multi-million dollar settlement.
Do I get a copy of this contract?
Yes. You must be given a signed copy of your employment contract once you enter into it.
What happens once the contract lapses?
If you and your employer continue to work under the terms of the contract after it expires, California law presumes the contract to remain enforceable until:
- you or your employer ends the contract, or
- the contract is superseded by another contract.
What are commissions?
California Labor Code 204.1 define commissions as:
“compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionally on the amount or value thereof.”
Under LC 2751, commissions do not include:
- bonuses based on short-term productivity (common in retail);
- short-term, changeable incentives that increase payments in the contract;
- Profit-sharing plans or bonuses unless the employer offered to pay a fixed percentage of sales or profits as compensation.
What if my employer does not pay me?
You can file a wage claim with the Labor Commissioner or file a traditional wage and hour lawsuit. You can also consider filing a PAGA lawsuit, whereby the state imposes civil penalties against your employer. You would get to keep 35% of these penalties.
Make sure to keep detailed records of all your communications with your employer, and always document the work you do at your job. This could be vital evidence during settlement negotiations and potentially at trial.
Should I have an attorney look over my contract?
It is highly advised to have independent counsel review your employment contract before you sign it. The attorney will ensure that the contract clearly spells out how your commissions are earned and whether you still get paid if a pending sale goes through after the contract expires.
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:
LC 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.
- Jane Mundy, IBM to Settle Sales Reps Claims for $4.75M, L+S (September 6, 2022).
- See note 1.