I recently blogged about AB 1396 which requires written commission agreements in California by January 1, 2013 (link). Since then, AB 2675 was enacted to refine what is not considered a commission under that requirement.
AB 2675 clarifies that the following types of payments are not considered commissions for purposes of this requirement:
- Short-term productivity bonuses such as are paid to retail clerks.
- Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract.
- 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.
The legislative history indicates that AB 2675 was designed to address an issue raised by the California New Car Dealers Association. Employees at car dealerships, whether in sales or service, apparently get a lot of commissions and generally will have written commission agreements. But every so often there will be a new temporary incentive offered in addition to the commission already agreed upon; for example, an extra $500 to the first person to sell that yellow car that has been on the lot for three months. All this new bill says is that the additional temporary commission, that extra $500, need not be in a written agreement. The case made by the Association was that to do so for every additional incentive offered would be too burdensome.
Overall, AB 2675 will not change much for most employers. Employees paid commissions still need to have a signed written commission agreement on file by the end of this year. And if you are in doubt about whether a payment is or is not a commission, you have two options: (1) call your attorney and have her analyze the issue for you; or (2) since this is a new statute, and the definition of commission is far from crystal clear, prepare a written commission agreement and get it on file. Sometimes it is better to be safe than sorry.