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CALIFORNIA LAW ON SALES COMMISSION AGREEMENTS (AB 1396) BEGINS jANUARY 1, 2013

October 8, 2012

Beginning January 1, 2013, a new law will require employers that have any employees who will receive commissions for providing services in California to have written commission agreements that meet specific requirements.

Assembly Bill 1396, which amends Section 2751 of the state Labor Code, applies to each employee paid a commission, regardless of whether it represents all or just a portion of the employee’s compensation, and to employers located in or outside of the state. Former Labor Code 2751 required out-of-state employers to have written contracts with their California employees who are paid a commission, including details about the method of paying the commissions. The law was invalidated by a federal court because it
treated California-based companies more favorably than employers who had no fixed place of business in California.

AB 1396 corrects this defect by imposing the same requirements on California employers. Thus, as of January 1, 2013, both California and non-California based employers must have written contracts with employees in California who are paid in whole or part on a commission basis.

Commission wages don’t include short-term productivity bonuses (for example, those paid to retail clerks). The term also doesn’t encompass bonus and profit-sharing plans—unless the employer has offered to pay a fixed percentage of sales or profits as compensation for work to be performed.   10.08.2012

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