California Commission Agreements: What Labor Code 2751 Requires in Writing
Labor Code 2751 requires every California commission agreement to be in writing, to state how commissions are computed and paid, and to come with a signed copy and your signed receipt. What the statute requires, which plan clauses hold up, and how to check your own plan.
Labor Code 2751 requires every California commission agreement to be in writing, to state how commissions are computed and paid, and to come with a signed copy and your signed receipt. What the statute requires, which plan clauses hold up, and how to check your own plan.
Labor Code 2751 requires a California commission agreement to be in writing and to state the method by which your commissions are computed and paid. Your employer must give you a signed copy and get your signed receipt for it. The rule covers any employer, including one based out of state, when your work is done in California. It does not set your rate, your quota or your territory.
At a glance
- Two things must be in the writing: how commissions are computed and how they are paid.
- Your employer signs and hands you a copy. You sign a receipt.
- If you keep working after the plan expires, its terms are presumed to stay in effect.
- A written plan cannot set aside the Labor Code's wage-payment protections, and an earned commission is a wage.
- Chargebacks and draw repayments generally need your written agreement.
| What people assume | What California law says |
|---|---|
| A separate section, 2752, gives me the right to a signed copy of my plan. | That section was repealed in 2011. The signed-copy and signed-receipt duties sit in Labor Code 2751 itself. |
| Labor Code 2753 requires my employer to give me a written statement of commissions. | That section is about advisers who help an employer treat workers as independent contractors. It says nothing about commission statements. |
| The written-plan rule only applies to California companies. | It applies to any employer whose commission employee works in California. |
| My plan expired, so my employer can pay me whatever it wants. | If you keep working under an expired plan, its terms are presumed to remain in effect until a new plan replaces it or the job ends. |
| If I signed the plan, every clause in it is enforceable. | A private agreement cannot set aside the Labor Code's wage-payment protections. Once you meet the plan's conditions, the commission is a wage. |
What must a California commission agreement include under Labor Code 2751?
| Requirement | What Labor Code 2751 says | What to look for in your plan |
|---|---|---|
| A written contract | "the contract shall be in writing" | A document you can keep. |
| How commissions are computed | It must "set forth the method by which the commissions shall be computed" | The rate, what the rate is applied to, and any tiers or quotas. |
| How commissions are paid | The same sentence ends "and paid" | When a commission counts as earned, and when it reaches your paycheck. |
| A signed copy for you | The employer "shall give a signed copy of the contract to every employee who is a party thereto" | A copy with your employer's signature on it, in your own files. |
| Your signed receipt | The employer "shall obtain a signed receipt for the contract from each employee" | The acknowledgment you signed, and a copy of it. |
| Expired plans | Terms "are presumed to remain in full force and effect" until superseded or employment ends | The plan year printed on the document. |
| What counts as a commission | It uses the definition in Labor Code 204.1 and excludes some bonuses | Whether your pay is tied to what you sell. |
Labor Code 2751(a) applies "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". Its demand is short: "the contract shall be in writing and shall set forth the method by which the commissions shall be computed and paid."
Subdivision (a) lists no rates, territories, quotas or termination terms. Subdivision (b) adds the paper trail, a signed copy from your employer and a signed receipt from you. It also covers the plan that runs out while everyone keeps working: "In the case of a contract that expires and where the parties nevertheless continue to work under the terms of the expired contract, the contract terms are presumed to remain in full force and effect until the contract is superseded or employment is terminated by either party."
Do sections 2752 and 2753 add more requirements?
No. A widely read legal encyclopedia page attributes the signed-copy duty to section 2752 and a commission statement to section 2753. Both numbers are wrong.
Section 2752 no longer exists. AB 1396, signed in October 2011, repealed it. It was never a signed-copy rule. It made an employer that skipped the written contract liable for triple damages, and that remedy went with it.
Labor Code 2753 makes a person liable who "knowingly advises an employer to treat an individual as an independent contractor to avoid employee status for that individual". It took effect on January 1, 2012, and has nothing to do with commission statements.
The history explains the confusion. Before AB 1396, the written-plan rule reached only an employer with no permanent place of business in California. In Lett v. Paymentech (1999), a federal court found the old commission sections "violative of both the Commerce Clause and of the Equal Protection Clause of the United States Constitution". AB 1396 made the rule apply to all employers by January 1, 2013, with the stated intent "to restore the employee protections that had been in effect prior to that holding". AB 2675 (2012) then added the exclusion for temporary incentive payments.
Who does Labor Code 2751 cover?
Coverage turns on where you work. Where your employer is based does not matter. AB 1396 made the requirement apply "to all employers entering into a contract of employment involving commissions as a method of payment with an employee for services to be rendered in the state." A company headquartered in another state with an account executive in Los Angeles is inside the rule on the statute's own words. The section has no exemption for salaried or exempt staff and no minimum company size.
What counts as a commission is the harder question. Labor Code 2751(c) borrows the definition in Labor Code 204.1: "Commission wages are compensation paid to any person for services rendered in the sale of such employer's property or services and based proportionately upon the amount or value thereof."
For this section only, three kinds of pay are carved out:
- "Short-term productivity bonuses such as are paid to retail clerks."
- "Temporary, variable incentive payments that increase, but do not decrease, payment under the written contract."
- "Bonus and profit-sharing plans, unless there has been an offer by the employer to pay a fixed percentage of sales or profits as compensation for work to be performed."
The Labor Commissioner's enforcement manual says a bonus is usually "based on reaching a minimum amount of sales", while a commission is a percentage of the price, or proportional to the number of products or services sold.
What if you never got a written plan, or never signed one?
Labor Code 2751 sets out duties but no penalty of its own, and the triple-damages section that once backed it is gone. That does not leave you empty-handed. A missing or vague plan tends to hurt the employer in three places.
Unclear terms are read against the employer. Civil Code 1654 says "the language of a contract should be interpreted most strongly against the party who caused the uncertainty to exist." Civil Code 1442 adds that "A condition involving a forfeiture must be strictly interpreted against the party for whose benefit it is created."
The Labor Commissioner's manual applies both ideas to commission plans. An ambiguous clause that would cost you post-termination commissions "will be strictly interpreted against the forfeiture."
Clawbacks generally need your written agreement. In Sciborski v. Pacific Bell Directory (2012), the Court of Appeal said an employer's right to recoup an advance "generally requires a showing that the employee agreed in writing to the specific condition and to the employer's right to recoup the advance under the stated conditions." In an earlier case described in Koehl v. Verio (2006), a summary ruling for the employer was reversed. The employees there "did not expressly agree to the chargeback policy in writing," and the employer's own materials suggested pay was earned at the time of the sale.
A late plan can count against the employer. The Labor Commissioner's manual describes a case where a court found procedural unconscionability (unfairness in how the deal was made). The employer did not present the written plan "until 2 weeks after he had commenced employment", after the employee had moved for the job on an oral offer. The court also found the forfeiture itself commercially unreasonable, and the manual says a finding of unconscionability needs both kinds of unfairness.
Which commission plan clauses hold up?
A clause can be in writing and still fail. Labor Code 219(a) says the wage-payment rules in its article cannot "in any way be contravened or set aside by a private agreement, whether written, oral, or implied."
| Clause | Usually holds up? | Why |
|---|---|---|
| Chargeback of advances against future commissions | Yes, if you agreed in writing | Steinhebel (2005) and Koehl (2006) enforced signed plans that defined when a commission was earned. For non-exempt staff, recovery never cuts into minimum wage and overtime. |
| Deduction for returns that cannot be traced to your sale | No | Hudgins (1995) treated deductions for unidentified returns as an unlawful charge for business losses. |
| Condition that shifts the employer's costs to you | No | Sciborski (2012) and the Labor Commissioner's manual reject conditions that pass on the cost of doing business. |
| Recoverable draw | Only with a specific written agreement | Advances are recovered at termination only by written agreement, and never below minimum wage and overtime for non-exempt staff. |
| Must be employed on the payout date | Depends on how the plan defines "earned" | Conditions can decide when pay is earned. Once earned, it is a wage. |
| Cutoff for commissions after you leave | Depends on when you got the plan and what it forfeits | One appeals court enforced a clause ending commissions on payments received more than 30 days after the employee left. In another case, a court found a forfeiture unconscionable where the plan arrived late and the amount lost was commercially unreasonable. |
| Cap or discretion clause written into the plan | Depends on the plan and how it is used | Labor Code 2751 requires the method to be in writing but does not set the terms. The Labor Commissioner's manual says an employer with the "unilateral right to modify" the contract must use "good faith and fair dealing when exercising its discretion". It also says conditions such as delivery dates, payment dates and chargebacks for returns "may be utilized in computing the payment" if they are "clear and unambiguous". No clause can take back a commission already earned. |
| Retroactive cut to a commission already earned | No | An earned commission is a wage. |
Can your employer charge back a commission?
Yes, within limits set by the plan's own wording. The leading case is from Los Angeles. In Steinhebel v. Los Angeles Times Communications (2005), the Court of Appeal held "an employer may legally advance commissions to its employees prior to the completion of all conditions for payment and, by agreement, charge back any excess advance over commissions earned against any future advance should the conditions not be satisfied." Each employee there had signed the plan and an acknowledgment, and each received a full hourly wage regardless of sales.
Koehl v. Verio (2006) went further. The plan never used the word "advance", but it said commissions were not earned "until the service or product has been delivered, accepted and payment has been received by Verio for three (3) months." The court enforced it: "Appellants agreed to what they agreed to, and that agreement will be enforced".
The line sits at conditions unrelated to your sale. In Hudgins v. Neiman Marcus (1995), deducting a share of unidentified returns from salespeople's commissions was unlawful. The employee did not challenge the separate policy of taking back the commission on a specific returned sale, so the court did not rule on it. Sciborski puts both limits in one place. Once the conditions are met, "an employer cannot recoup the commission once it has been paid to the employee," and an employer may not dress up a deduction as recouping an advance when the conditions "merely reflect the employer's attempt to shift the cost of doing business to an employee."
For money taken out of a paycheck you already received, see our guide on when an employer can withhold your paycheck.
Can a plan make you stay employed until the payout date?
Sometimes. The answer depends on how the plan defines "earned", and the leading case is not about sales commissions.
In Schachter v. Citigroup (2009), the California Supreme Court upheld a forfeiture in an incentive plan paid partly in restricted stock, because under its terms "no earned, unpaid wages remain outstanding upon termination". The employee had resigned, and the plan paid employees let go without cause. In Neisendorf v. Levi Strauss (2006), a bonus case, the Court of Appeal stated the other half of the rule: once a bonus is promised "and the employee fulfills all the agreed-to conditions, the promised bonus is considered wages that must be paid."
The Labor Commissioner's manual treats quitting and being fired differently when duties needed to complete a sale are left undone, so check what your plan says about each. Koehl describes American Software v. Ali, where the Court of Appeal enforced a clause ending a software salesperson's right to commissions on payments received more than 30 days after she left. The manual describes a separate case, Ellis v. McKinnon Broadcasting, where a court found a forfeiture clause unconscionable: the plan arrived two weeks after the start date, and the amount forfeited was commercially unreasonable. Koehl followed American Software, which criticized Ellis for asking whether the commission was reasonable and found the Ellis result hard to reconcile with other California appellate decisions. Koehl called the "shock the conscience" standard used instead "more rigorous", a test that is harder for the employee to meet. The Labor Commissioner's manual says American Software and Ellis "appear to be irreconcilable but, in fact, turn on the question of what each of the courts viewed as unconscionable".
When a commission is due after you leave is a question of final-pay law. Our unpaid commissions guide and our California final paycheck guide cover the deadlines and penalties.
Ready to talk it through?
If your plan has a clause that cost you money, a lawyer can read it with you against these rules. Tell us what happened.
Can your employer cap or change your commission plan?
Labor Code 2751(a) asks for the method "in writing". It does not list the methods an employer may choose, and it sets no rates, caps or discretion terms. That does not make every cap or discretion clause safe. The Labor Commissioner's manual says an employer with the "unilateral right to modify" an employment contract must use "good faith and fair dealing when exercising its discretion". The manual also says conditions such as delivery dates, payment dates and chargebacks "may be utilized in computing the payment" of a commission if they are "clear and unambiguous".
Changing the plan going forward is generally allowed. In DiGiacinto v. Ameriko-Omserv (1997), a Second District case about an hourly pay cut, the court held that "an at-will employee who continues in the employ of the employer after the employer has given notice of changed terms or conditions of employment has accepted the changed terms and conditions." Schachter set the limit: the change must not "violate a statute or breach an implied or express contractual agreement."
A change cannot take back a commission you already earned. The harder cases sit in between, with a deal closed but not yet earned when the new plan arrives. In Peabody v. Time Warner Cable, an employee said a March 2009 plan change cost her commissions on January and February sales. As the California Supreme Court later described the case, the federal district court determined that those commissions "were not earned, and thus not owed, until after adoption of the new compensation plan", and the Ninth Circuit affirmed on that claim. Read the earned definition in the old plan before you sign the new one.
Labor Code 2751(a) applies "Whenever an employer enters into a contract" that pays commissions. A new or changed plan may count as a new contract under that wording, which would call for a signed copy and a receipt for you to sign. The statute does not mention plan renewals by name, so ask for a signed copy of every version.
How do draws, minimum wage and overtime work on commission?
A draw is a regular payment against commissions you have not earned yet. The Labor Commissioner's manual treats it as "the basic wage", due each period "even though commissions do not equal or exceed the amount of the draws, unless there is a specific agreement to the contrary." The draw must at least cover minimum wage and any overtime you are owed, unless you are exempt as an outside salesperson. On termination, "Advances may only be recovered at termination if there is a specific written agreement to that effect and only to the extent that the advances exceed the minimum wage and overtime requirements."
For most employees, commission pay does not cancel the minimum wage. Wage Order 7, which covers the mercantile industry, requires minimum wage "whether the remuneration is measured by time, piece, commission, or otherwise." The main exception is the outside salesperson, someone who "customarily and regularly works more than half the working time away from the employer's place of business selling". Wage Order 7 does not apply to outside salespersons at all.
The Labor Code says the same thing. Labor Code 1171 leaves anyone employed as an outside salesman out of the state's wage-and-hour chapter. That exclusion reaches only that chapter. Labor Code 2751 and the wage-payment rules in Labor Code 204, 219 and 221 sit elsewhere in the Code and have no outside-sales exception. On their text, they still reach outside salespeople.
Overtime has several exemptions. Outside salespersons are exempt, and so are employees who meet the executive, administrative or professional tests. For other commission earners, Wage Order 7, section 3(D), sets its own test: overtime rules do not apply to an employee whose earnings exceed one and one-half times the minimum wage "if more than half of that employee's compensation represents commissions." Wage Order 4, which covers professional, technical, clerical and similar jobs, has the same wording. None of the other industry wage orders contains this exemption. Only pay that meets the legal definition of a commission counts toward that half. In Ramirez v. Yosemite Water (1999), the California Supreme Court applied the statutory definition of a commission to this exemption and quoted a two-part test: the employee must be "involved principally in selling a product or service," and the pay must be "a percent of the price of the product or service." In Peabody (2014), the same court held that "An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall." Whether an exemption fits your job turns on what you actually do, so do not assume either way.
The Peabody court also said "Commissions are owed only when they have been earned, even if it is on a monthly, quarterly, or less frequent basis." Once earned, commissions are generally paid on the regular paydays, at least twice a month, under Labor Code 204. Labor Code 204.1 is the exception: a licensed vehicle dealer may pay commission wages once a month.
How long do you have to act on a commission dispute?
The clock depends on the kind of claim. The Labor Commissioner's wage claim page lists "Within two years for an oral promise to pay more than minimum wage", "Within three years for violations of minimum wage, overtime, unpaid rest and meal breaks, sick leave, illegal deductions from pay or unpaid reimbursements" and "Within four years for a written contract."
Those periods track Code of Civil Procedure 337, for a contract "founded upon an instrument in writing", Code of Civil Procedure 338, for "a liability created by statute", and Code of Civil Procedure 339, for one "not founded upon an instrument of writing". A written plan can give you four years on the contract. A commission taken back without a lawful basis can count as an illegal deduction from pay, which is on the three-year list. Which period governs your claim is a call for a lawyer. Deadlines can run early, so if you are getting close to two years, tell us what happened before the date passes.
How do you check your commission plan?
- Find the signed copy. If you never received one, ask for it in writing and keep the request.
- Find the computation: the rate, what it applies to, and any tiers.
- Find the earned trigger. Booking, invoice, payment, or a waiting period after payment.
- Check who signed what. Look for any chargeback, draw or cap clause, and a signature showing you agreed to it.
- Look for what happens if you quit or are fired.
- Keep every version. The earlier plan may decide what you are owed.
If the numbers do not add up, our guide to filing a Labor Commissioner wage claim explains that route. Our wage theft guide compares the options, and our unpaid wages lawyer page explains how the firm handles these cases.
A missing or unsigned plan is not a reason to drop a commission claim. Your employer generally needs your written agreement to take money back, so bring every version you have.
Frequently asked questions
Is section 2752 of the California Labor Code still the law?
No. AB 1396, signed in October 2011, repealed it. It was a triple-damages remedy and never a signed-copy rule. The duty to give you a signed copy of your commission plan, and to get your signed receipt, is in Labor Code 2751(b).
Does Labor Code 2751 apply if my employer is based outside California?
Yes. Labor Code 2751 applies to a contract "for services to be rendered within this state". Since January 1, 2013, the written-plan rule has applied to all employers paying commissions for work done in California, wherever the company is based. A company headquartered in another state with a salesperson working in California must still put the commission plan in writing and give that salesperson a signed copy.
Does a commission-only job still have to pay minimum wage in California?
Usually, yes. The wage orders require the minimum wage for every hour worked, whether pay is measured by time, piece or commission. Outside salespeople, who spend more than half their working time away from the employer's place of business selling, are excluded from those rules. Draw advances can be recovered at termination only under a specific written agreement. For employees the minimum wage covers, recovery also cannot cut into minimum wage and overtime.
Are commissioned salespeople entitled to overtime in California?
Usually, yes, unless an exemption applies. Outside salespeople are not covered by the overtime rules, and neither are employees who meet the executive, administrative or professional tests. Inside commission earners covered by Wage Order 4 or Wage Order 7 can also fall under the commissioned-employee exemption, which no other wage order contains. It applies when you earn more than one and one-half times the minimum wage and more than half your pay is commissions, counting only pay that meets the legal definition of a commission. Your employer cannot move pay between pay periods to meet that test.
Can my employer make me sign a release to get my final commission?
Not for wages that are already due. Labor Code 206.5 says an employer "shall not require the execution of a release of a claim or right on account of wages due" unless those wages have been paid, and a release demanded in violation is null and void. If the amount is genuinely disputed, Labor Code 206 still requires the employer to pay the part it concedes, without conditions. Talk to a lawyer before you sign any release.
The Law Offices of Jonathan J. Delshad is a Los Angeles based employment law firm representing employees across California in wrongful termination, discrimination, retaliation, harassment, and wage and hour matters. Representing employees is the core of the firm's practice. Mr. Delshad serves as Editor-in-Chief of the California Wrongful Termination Law Review and trained at Latham & Watkins. Recognition includes Super Lawyers (2022 to 2027), Best Lawyers (since 2017), and an Avvo 10.0 "Superb" rating. Reviewed for California employment law accuracy. Last updated: October 5, 2026.
Attorney advertising. This article is educational only and is not legal advice. Reading it does not create an attorney-client relationship, which exists only under a signed engagement agreement. Every case is different, and outcomes depend on the specific facts. Deadlines can run early, so consult a lawyer promptly about your situation.
