Digital On Air sign, indicating broadcastingOn Fox’s entertainment industry-focused Pay or Play blog, associate Laurie Baddon wrote a post covering recent reports on employment agreements signed by news anchors working at television stations owned by Sinclair Broadcast Group. Laurie breaks down the controversial elements of the agreements, and examines them in the context of California employment law.

To get a better sense of the legal aspects of this national news story, we invite you to read Laurie’s post on Pay or Play.

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.

 

The dog days of summer are almost over, and it is time to think about that to-do list for year end. One item on that list for all California employers should be to make sure you have updated, accurate, and signed commission agreements on file.

As you may recall, last year AB 1396 was passed, requiring that any employer who pays commissions to employees must have a written contract setting forth “the method by which the commissions shall be computed and paid.” The employer must give a copy of the signed agreement to the employee and keep a signed copy on file. If the commission agreement expires, and the employee keeps working, then it is presumed to remain in effect until superseded or employment is terminated.

Questions may arise as to whether your pay practices actually involve commissions. The Labor Code defines commissions as compensation paid for services rendered in the sale of the employer’s property or services and based proportionally upon the amount or value thereof. AB 1396 specifically excludes short-term productivity bonuses paid to retail clerks, and bonus or profit sharing plans (unless they involve a fixed percentage of sales or profits for work to be performed).

When you are drafting your commission plans make sure to clearly explain how the commission is calculated. Define terms such as “gross profit” versus “net profit” or “company accounts” versus “employee accounts.” Also clarify when the commission is earned versus when it is paid. For example, is it earned when the sale is booked or when it is paid? Clear terms on these issues will avoid ambiguity and disputes upon termination. Be sure to include a right to revise the agreement upon notice to the employee.

Remember, if the commission agreement is too complicated to explain to a 5th grader or your grandmother, then you risk losing any challenge to it. The best advice is to keep it simple, get it signed, and pay commissions exactly as you have set forth in the agreement.