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When Unpaid Commissions, Deductions, Paybacks And Advances Are Prohibited By California Law
On behalf of The Kaufman Law Firm posted in Unpaid Commissions on Friday, June 15, 2018.

Many of you probably know that California law prohibits employers from making deductions from the wages of their employees unless the employer can establish that the business loss was caused by a dishonest or willful act or culpable negligence on the part of that employee.

But what about commissions? Can employers in Los Angeles and elsewhere in California refuse to pay commissions or deduct a certain amount from an employee’s commission?

“It depends,” says our Los Angeles unpaid commissions attorney from The Kaufman Law Firm. “In most cases, the answer to this question can be found in the commission agreement signed by the employee.”

Deductions from commissions

Many commission agreements require an employee’s commission to be deducted by the costs that are directly related to the sale that was made by the employee. Therefore, California law does NOT prohibit employers from making deductions for things such as shipping, the cost of the product that was sold, and other expenses but only as long as this was clearly outlined in the commission agreement and the deductible costs are related to the same sale of a particular employee.

Our best unpaid commissions lawyers in California explain that it would be unlawful for employers to deduct the cost of something that is only remotely related to a sale or has nothing to do with the sale or this particular employee altogether. California law also prohibits employers from reducing the amount of commissions paid to the employee by other factors such as credit card fees.

A rule of thumb is that a deduction from an employee’s commission will most likely be considered lawful if the employee was warned about and agreed to these types of deductions as part of the commission agreement.

“All these things must be clearly stated in writing in the agreement,” explains our unpaid commissions attorney in Los Angeles. “If it is not there, then the employer is violating California laws.”

Paying back a commission

Most commission agreements include a condition that requires commission-based employees to payback a commission if the sale was reversed or the product was returned by the customer.

However, some unscrupulous employers in Los Angeles and all across California take advantage of this condition and require employees to payback commissions for merchandise returns that have nothing to do with this particular employee. This practice is against the law. An employer has the legal right to require an employee to payback a commission only if he or she can specifically identify that the merchandise returned came from a specific employee. Otherwise, it would be unlawful to make deductions for reversed sales.  

Advances and draws in commission agreements

For many commission-based workers in California, terms and conditions regarding advances and draws are the most confusing things about unpaid or underpaid commissions.

In some commission agreements, employers promise to pay a salesperson or any other commission employee an advance toward a commission that has not yet been earned. In most cases, agreements require employers to pay a commission in full or in part before a sale has been finalized.

This advance commission is often considered the minimum compensation for a salesperson’s work if commissions earned total less than a specific amount. In most cases, employees are required to payback advanced commissions if an employee fails to earn commissions that equal or exceed the amount that was paid as an advanced commission.

“If that is the case, such advanced commissions are viewed merely as a loan, and employees may be required under their commission agreement to payback the advanced commission in full or in part,” explains our Los Angeles unpaid commissions attorney.

However, California law prohibits the practice of paying advanced commissions if the amount of commissions an employee is expected to earn cannot be predicted in advance and/or that employee has no control over finalizing the sale of merchandise.

Minimum wage and underpaid or unpaid commissions

If you are a commission-based employee and you are not exempt from minimum wage requirements, then you are entitled to earn minimum wage for hours worked. Therefore, employers in California are prohibited from making deductions from an employee’s commission or requiring an employee to payback earned or advanced commissions if the remaining and total amount of the employee’s wages would be below the minimum wage requirements after the deduction or payback.

Consult with our employment law attorneys at The Kaufman Law Firm to speak about your particular case. Let our lawyers review your case and determine whether or not your employer’s actions are illegal. Call at (818)-305-6457 or (866)-278-2385 or fill out the contact form for a free case evaluation.

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