Unpaid commissions are a very common type of wage claim in California. Employees who earn commissions but are never paid for them may usually recover the commissions earned in a wage claim. However, California law distinguishes between the many types of commissions, and some “commissions” are not considered wages that can be recovered in a wage claim.
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Commissions are Wages
In California, commissions are “wages.” That means you can bring a wage claim in court or with the Labor Commissioner to collect unpaid commissions.
The term “commission wages” has been defined in the case of Keyes Motors, Inc. v. DLSE (1988) 197 Cal.App.3d 557; 242 Cal.Rptr. 873, which held that commissions arise from the sale of a product, not the making of a product or the rendering of a service. The court further held that in order to be a commission, the comp ensation m ust be a percentage of the price of the product or service which is sold.
What is Not Considered a Commission Wage
A plan which simply relies upon a “percentage” of some sum such as the cost of the goods sold or the services rendered by an establishment does not constitute a “commission wage”; the worker receiving the commission must be principally involved in selling the goods or the services upon which the commission is measured.
“Tech commissions” earned by auto mechanics and technicians are not considered commissions. Instead, auto mechanics and technicians must usually be paid an hourly rate.
Commission computation is based upon the contract between the employer and the employee. The commission may be based on either gross sales figures or net sales figures. As discussed below, certain criteria cannot be considered when reaching the “net” sales figures. If the element upon which the deduction from the gross sales is based is predicated up on a cost which is attributable to the employer’s cost of doing business, the element may not be used.
Payment Of Commissions Upon Termination Of Employment
A commission is “earned” when the employee has perfected the right to payment; that is, when all of the legal conditions precedent have been met. The provisions of any contract notwithstanding, California courts will not enforce unlawful or unconscionable terms and will construe any ambiguities against the person who wrote the contract (usually the employer) to avoid a forfeiture.