California Commission Agreement: Terms, Pay, and Unpaid Claims

California commission agreement requirements come from Labor Code Section 2751: any employer whose pay plan includes commissions must give the employee a signed written contract that explains how commissions are calculated and when they are paid, deliver a copy to the employee, and obtain a signed receipt confirming the employee got it.¹ The rule applies to every industry, and the contract has to stand on its own. A handshake, an email summary, or a paragraph tucked into an employee handbook does not satisfy it.

What the Contract Has to Say

The agreement must set out the method for computing and paying commissions. In practical terms, it needs to answer three questions clearly: what triggers a commission, how the amount is calculated, and when the money hits the paycheck.¹

If a salesperson earns 5% on each closed deal, the contract has to say so and define “closed.” If the percentage runs off gross revenue, that is different from net profit after returns or overhead, and the document must specify which. Vague language is a losing position for the employer, because California courts routinely read ambiguous contract terms in favor of the worker.

Payment timing needs the same precision. Monthly, next regular payday after the deal closes, upon a quarterly milestone, whatever the schedule, the contract should state it plainly. The timing also feeds into overtime math, since commissions count toward the regular rate of pay when overtime is owed.

What Counts as a Commission

California defines commission wages as compensation paid for services in the sale of the employer’s property or services, where the pay is proportional to the amount or value of what the employee sold.² The defining feature is the direct link between individual sales performance and the amount of pay.

Labor Code 2751 excludes three categories from the written-contract requirement:

Short-term productivity bonuses, such as the kind paid to retail clerks for hitting a daily or weekly target.
Temporary, variable incentive payments that can increase but never decrease an employee’s existing base compensation.
Bonus and profit-sharing plans, unless the employer has offered to pay a fixed percentage of sales or profits as compensation for work performed, in which case the plan is a commission.

That last carve-out catches more employers than they expect. If a “bonus” plan is actually a formula tied to an individual’s sales volume, calling it a bonus does not change its legal nature. It is a commission, and it needs a written agreement.¹

Signatures, Copies, and Plan Changes

Once the agreement is drafted, the employer has to collect two things from the employee: a signature on the contract itself and a signed receipt confirming the employee received a copy. Handing someone a document without a verified acknowledgment does not satisfy the statute. The employer must also give the employee a signed copy of the fully executed agreement.¹

Electronic signatures work under California’s Uniform Electronic Transactions Act (Civil Code Section 1633.1 et seq.), provided both parties agree to conduct the transaction electronically, the signer shows clear intent, and the signed record can be retained and retrieved later in its original form. DocuSign and similar platforms generally meet the test. What matters is that the employer can prove later that the employee actually signed and received the document.

When the plan changes mid-employment, the whole process repeats. New written agreement, new signature, new signed receipt, new copy delivered. A team meeting announcement or an updated internal policy page does not amend the deal.

If an agreement runs for a set period and expires without a replacement, Labor Code 2751 handles the gap. When the contract expires but both sides keep working under its terms, the expired contract is presumed to remain in full force until a new one replaces it or employment ends.¹ An employer cannot quietly let a generous plan lapse and then apply a leaner formula to the ongoing work. The old terms govern until something new is signed.

When a Commission Is Earned

The contract should pin down the exact moment a commission vests, meaning the point at which the employee has an irrevocable right to the money. Most disputes start here. Some agreements say a commission is earned when the customer signs. Others require that a refund window close first, or that the customer make an initial payment. Whatever the trigger, the written agreement has to say it.

Once a commission is earned under the contract’s terms, California law strongly disfavors taking it back. Courts will not enforce forfeiture clauses that strip an employee of commissions earned before termination. A worker who closed deals while employed is entitled to the commissions on those deals, even after leaving.³

California also recognizes a “procuring cause” principle: a salesperson who was the driving force behind a deal is entitled to the commission even if someone else technically received the final order. And if an employer fires a salesperson right before a deal closes specifically to avoid paying, the employee can argue that the employer prevented performance of the conditions for payment, which itself triggers the right to the commission.³

Chargebacks and Clawbacks

Chargebacks, where the employer deducts a previously paid commission after a return or cancellation, are legal in California, but only when the written agreement spells out the specific conditions. A contract might say a commission is not fully earned until the 30-day refund window closes, or that commissions are subject to clawback if a subscription cancels within 90 days.

What employers cannot do is apply chargebacks based on general business losses, unrelated customer complaints, or conditions that were not in the original agreement. Deductions that are not tied to a clearly defined contractual trigger are treated as unlawful wage deductions.

Minimum Wage for Commissioned Employees

Commission-only pay is allowed in California, but it does not override the state’s minimum wage floor. As of January 1, 2026, California’s minimum wage is $16.90 per hour for all employers.⁴ If an employee’s commissions for a pay period, divided by hours worked, fall below that rate, the employer has to make up the difference.

Certain inside salespeople are exempt from overtime if they earn more than one and a half times the minimum wage and more than half of their total compensation comes from commissions. Even so, every hour worked still has to be paid at least at the minimum wage. No commission structure can leave an employee effectively earning less than the legal floor.

Final Pay After Separation

When an employer fires or lays off an employee, all earned wages, including earned commissions, are due immediately at the time of discharge.⁵ An employee who quits without 72 hours’ notice must be paid within 72 hours. One who gives 72 hours’ notice or more must be paid on the last day of work.⁶

These deadlines cover commissions that have already been earned under the contract. If a deal closed and every condition for payment was met while the employee was still working, that commission rides the same timeline as the rest of final wages.

Waiting Time Penalties

Missed deadlines trigger waiting time penalties under Labor Code 203. The penalty equals the employee’s daily rate of pay for each day payment is late, capped at 30 days. For a commissioned salesperson with a high daily rate, the number climbs fast.⁷

The penalty applies when the failure to pay is willful, but California reads “willful” broadly. Bad intent is not required. If the employer knew wages were due and did not pay them, that is generally enough.⁸

Filing a Claim for Unpaid Commissions

An employee who has not been paid earned commissions can file a wage claim with the California Labor Commissioner’s Office (the Division of Labor Standards Enforcement, or DLSE). After the claim is submitted, the office investigates, usually schedules a settlement conference, and moves to a formal hearing if the matter does not resolve. There is no filing fee.⁹

Deadlines depend on the type of claim. Commissions owed under a written contract carry a four-year statute of limitations. An oral promise to pay commissions above minimum wage drops that to two years. Unpaid minimum wage or overtime claims tied to commission shortfalls have a three-year window.⁹

Employees can also sue privately, and violations affecting multiple workers can be pursued through a Private Attorneys General Act (PAGA) action, which lets an employee seek penalties on behalf of coworkers for Labor Code violations.¹⁰ That is often how a missing or defective commission agreement comes back to bite an employer, because the exposure scales across the entire sales team.

1
California Legislative Information. California Code LAB 2751 – The Contract of Employment
2
California Legislative Information. California Labor Code 204.1
3
Department of Industrial Relations. Division of Labor Standards Enforcement Opinion Letter – Payment of Commissions Upon Termination of Employment
4
Department of Industrial Relations. Minimum Wage
5
California Legislative Information. California Code LAB 201
6
California Legislative Information. California Code Labor Code 202
7
California Legislative Information. California Labor Code 203
8
Department of Industrial Relations. Division of Labor Standards Enforcement – Waiting Time Penalty
9
Department of Industrial Relations. Labor Commissioner’s Office – How to File a Wage Claim
10
Department of Industrial Relations. Private Attorneys General Act (PAGA) – Filing