California Labor Code Section 2751 requires any employer that pays commissions for services performed in California to put the commission arrangement in a written contract, spell out how commissions are calculated and paid, give the employee a signed copy, and keep a signed receipt confirming delivery. The rule applies whether or not the employer is based in the state. Skip the writing, and every ambiguity about what was owed will be read against you, on top of civil penalties recoverable under the Private Attorneys General Act.
What Pay Counts as a Commission
Section 2751 doesn’t define the word itself. It pulls the definition from Labor Code Section 204.1, which describes commission wages as compensation for selling an employer’s property or services, calculated as a proportion of the amount or value of those sales.1California Legislative Information. California Code LAB 204.1 – Commission Wages The proportional piece is what matters. A percentage of every deal closed is a commission. A flat bonus for hitting a monthly target is not, because it isn’t tied proportionally to each sale.
Three categories of pay look like commissions but aren’t:
- Short-term productivity bonuses, like the daily or weekly sales incentives paid to retail clerks.
- Temporary, variable incentive payments, such as one-off contests or spiffs that aren’t a regular part of the pay structure.
- Bonus and profit-sharing plans, unless the employer has offered to pay a fixed percentage of sales or profits as the employee’s compensation for work performed.
That last carve-out is where employers get themselves in trouble. Labeling a plan a “bonus” doesn’t matter if the pay is a set percentage of each sale. It’s a commission, and Section 2751 applies.2California Legislative Information. California Code LAB 2751 – The Contract of Employment
What the Written Agreement Must Say
The statute requires the contract to “set forth the method by which the commissions shall be computed and paid.”2California Legislative Information. California Code LAB 2751 – The Contract of Employment Read broadly, that’s three questions the document needs to answer clearly enough that an employee can calculate their own pay:
- Computation. The formula or rate used to determine the commission on each sale, including any tiers, multipliers, or variable rates.
- When a commission is “earned.” The triggering event that locks in the employee’s right to payment, whether that’s closing the deal, the customer paying, the product shipping, or something else.
- Payment timing. The schedule on which earned commissions actually go out.
The earning-trigger piece is where most disputes land. Courts have found that if no further action is required from the employee to complete a deal other than staying employed, the commission may already be earned. Ambiguity in the agreement almost always favors the employee, because the employer drafted the contract and had the obligation to make it clear.
Chargebacks Depend on Whether the Commission Was Earned
Many commission plans let the employer take back a commission when a customer cancels or returns the product. California draws a hard line based on whether the money was already earned or was only an advance.
An advance or draw is money the employer fronts before the employee has earned it. That can be recovered, because the employee has no vested right to wages not yet earned. Once a commission becomes earned under the contract, it’s a wage. Labor Code Section 221 prohibits an employer from collecting back any wages already paid. So if the contract says a commission is earned at closing, you can’t claw it back after a later cancellation. If you want to reserve that right, the contract has to define the earning trigger as an event that occurs after the cancellation window closes. Applying new commission plan terms to past commissions is always prohibited.
Signed Copy, Signed Receipt
The employer must give a signed copy of the contract to every employee covered by it and must obtain a signed receipt from each employee confirming they received their copy.2California Legislative Information. California Code LAB 2751 – The Contract of Employment The statute doesn’t fix a delivery deadline, but the sensible reading is that the agreement should be in the employee’s hands before they start doing work that generates commissions. An employer who waits months to produce one is effectively operating without an agreement in the meantime.
Electronic signatures are valid for these agreements under the federal E-SIGN Act and California’s Uniform Electronic Transactions Act, provided the employee consents to conducting the transaction electronically. If you use an e-signature platform, keep the audit trail and time-stamped records. The employer carries the burden of proving authenticity if the signature is later challenged.
Changing Terms or Working Past Expiration
Changing the commission structure requires a new written agreement before the new terms take effect. You cannot rewrite the pay formula mid-stream and tell the employee about it after the fact.
If a commission contract expires by its own terms and the employee keeps working under the same arrangement, the statute is helpful: the expired contract’s terms stay in full force until a new agreement replaces it or the employment ends.2California Legislative Information. California Code LAB 2751 – The Contract of Employment Employees don’t fall into a gap where they’re earning commissions with no written terms. Employers can’t let an agreement lapse and then argue the old terms no longer control when a payout dispute surfaces.
Commissions at Termination
The California Division of Labor Standards Enforcement treats commissions that have been earned as of the termination date as wages due immediately at discharge under Labor Code Sections 201 through 203, even if the commission agreement says payment happens later, such as at the end of a fiscal quarter.3California Department of Industrial Relations. Waiting Time Penalties Earned commissions are wages, and California requires all earned wages to be paid immediately on involuntary termination, or within 72 hours if the employee quits without notice.
Failing to pay earned commissions at termination triggers a waiting time penalty under Section 203: the employee’s daily rate of pay times the number of days the wages remain unpaid, capped at 30 days.3California Department of Industrial Relations. Waiting Time Penalties A good faith dispute over whether wages are actually owed is a defense; inability to pay is not.
Commissions that were not yet earned at termination are different. If the earning trigger hasn’t occurred, the employee generally has no right to the payment. This is another reason the contract’s definition of “earned” carries so much weight. A vague or missing definition invites litigation, and courts resolve ambiguity in the employee’s favor.
Penalties When the Agreement Is Missing or Deficient
Section 2751 doesn’t carry its own penalty or a private right of action. An employee cannot sue directly under 2751 for the absence of a written agreement. Enforcement runs through the Private Attorneys General Act, which lets an aggrieved employee file a civil action on behalf of themselves and other affected employees for Labor Code violations that lack their own penalty.
PAGA Penalty Amounts
Because Section 2751 has no dedicated penalty, PAGA’s default schedule in Labor Code Section 2699(f) applies. After the 2024 PAGA reforms:4California Legislative Information. California Code LAB 2699 – Private Attorneys General Act
- Standard penalty: $100 per aggrieved employee per pay period.
- Reduced penalty for isolated violations: $50 per aggrieved employee per pay period if the violation resulted from an isolated, nonrecurring event lasting no more than 30 consecutive days or four consecutive pay periods, whichever is shorter.
- Heightened penalty: $200 per aggrieved employee per pay period, if a court or the Labor and Workforce Development Agency found the same violation against the employer within the preceding five years, or if the court determines the employer’s conduct was malicious, fraudulent, or oppressive.
Caps for Employers Who Fix the Problem
The 2024 amendments reward corrective action. If an employer brings itself into compliance and makes employees whole before receiving a PAGA notice, penalties are capped at 15% of the maximum. If those steps happen within 60 days after receiving the PAGA notice, the cap rises to 30%.5Morgan Lewis. California’s New PAGA Bill: Key Changes and Implications for Employers Employers who pay weekly get a 50% reduction in penalties.
Filing a PAGA Claim
Before filing suit, the employee must submit notice of the alleged violation to the Labor and Workforce Development Agency through the PAGA Filing Portal and pay a $75 filing fee.6California Department of Industrial Relations. Private Attorneys General Act (PAGA) Filing After the 2024 amendments, the filing employee must personally have suffered the Labor Code violation at issue.
PAGA penalties aren’t the only exposure. Waiting time penalties can stack on top, and the affected employees can separately pursue claims for the underlying unpaid commissions themselves. In practice, the biggest cost of skipping the written agreement is not the statutory penalty at all. It’s that every ambiguity about what was owed gets construed against the employer who failed to write it down.