In California, your commission agreement determines when, or even if, an employer must provide earned commission pay after your termination.
Many California employers include forfeiture provisions that require you to be currently employed to receive your commission. This means that if you are terminated before receiving your commission, you forfeit it.
However, if your commission agreement does not have a forfeiture provision, you are generally entitled to receive unpaid commissions even after leaving your job.
There is inconsistency among California courts regarding the enforceability of forfeiture provisions. It’s crucial to carefully review and understand your commission agreement to know your rights and entitlements.
What is a commission agreement?
A commission agreement, also known as a commission plan, outlines how your commission payments will be calculated and paid. This agreement is often part of your employment contract and must be in writing if any portion of your pay includes commission wages.
A commission agreement cannot violate any sections of California employment law, such as those concerning minimum wage laws or overtime hours for non-exempt workers.
Commission agreements stipulate that a commission is not earned until it can be “reasonably calculated.” Once it can be “reasonably calculated,” it is considered earned. Once earned, the employer must pay it on your next payday.
What is a forfeiture provision?
A forfeiture provision is a common clause included in a written commission plan. It specifies that you must be currently employed to receive your commission payments.
When a valid forfeiture provision is present, you are not entitled to receive unpaid sales commissions after your termination. According to the written agreement, you forfeit your right to any unpaid commissions upon the termination of your employment.
What if there is no such provision?
If there is no forfeiture provision in the commission agreement – or if there is one but it is not enforceable in court – you are entitled to receive the commission wages you earned.
If you are terminated or quit with at least 72 hours’ notice, your unpaid wages, including commissions, are due on your last day. If you quit with less than 72 hours’ notice, the employer has 72 hours to pay you.
However, it may sometimes take additional days, weeks, or longer to “reasonably calculate” your earned commissions. This typically happens when:
- Certain conditions outlined in the commission agreement have not yet been met,
- The payment for the goods or services you sold is still pending, and/or
- Commission pay depends on your performance over a designated time period, such as a month, quarter, or year.
In these situations, the employer must pay you as soon as your earned commissions can be reasonably calculated.
What does California law have to say about forfeiture provisions?
California courts are divided on the enforceability of forfeiture provisions in commission agreements.
The Courts of Appeals in both the First District and the Second District have ruled that forfeiture provisions in commission agreements are legally binding and enforceable.
However, the Court of Appeals for the Fourth District of California has determined that forfeiture provisions are unconscionable and cannot be enforced within its jurisdiction. The Fourth District covers the following counties:
- Imperial
- Inyo
- Orange
- Riverside
- San Bernardino
- San Diego
The Supreme Court of California has not yet resolved this disagreement between the state’s appellate courts.
What if my employer is late in paying me?
If your employer is late in paying you your earned commissions after termination – and there is no good faith dispute – they should pay you waiting time penalties. These penalties are equal to your regular rate of pay for each day the payment is late, up to a maximum of 30 days.
To recover your earnings, you can file a wage theft claim with the California Labor Commissioner.
Be aware that some employers attempt to avoid paying overtime to commissioned workers by misclassifying them as outside salespeople rather than inside salespeople. Inside salespeople spend at least half their time at the employer’s place of business.
If you are actually an inside salesperson and have worked more than:
- 8 hours in a workday,
- 40 hours in a workweek, or
- 6 consecutive days in a workweek,
You can pursue your employer for overtime pay, which is typically 1.5 times your regular rate of pay. It can be double if you worked more than:
- 12 hours in a workday, or
- more than 8 hours on the seventh consecutive day in a workweek.
