A new law mandating that all commissioned employees in California be provided with a written contract became effective Jan 1st, 2013. The law states:
“By January 1, 2013, whenever an employer enters into a contract of employment with an employee for services to be rendered within this state and the contemplated method of payment of the employee involves commissions, the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid.”
The law also requires that the employer provide a signed copy of contract to the employee - which they must sign - to acknowledge receipt of the contract.
If the employee continues to work after the contract expiration date – as is often the case with project-based employees - the terms of the previous contract are presumed to remain in full force until the employee is terminated or a new contract is issued.
Flat rate payments – such as productivity bonuses and profit-sharing plans - are not treated as commissions unless the employer has agreed to pay a fixed percentage of sales or profits.
The reason for the new law coming into effect is that the former California Labor Code Section 2751, required out of state employers to have written commission agreements with their California employees. However, this law violated the Commerce Clause of the U.S. Constitution because it treated California-based companies more favorably than employers who had no fixed place of business in the state.
Employers should review existing commission agreements to ensure that they comply with the new law. Companies who engage workers on commissions through agencies must ensure that their staffing providers are aware of the new law and that they have made provisions to accommodate the changes.
For advice on how to properly engage project-based, commissioned workers, please feel free to contact us on 855 250 5000 or at firstname.lastname@example.org
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