July 11, 2019

Do you currently have employees who receive commissions?  In Steinhebel v. L.A. Times Comm., a case filed against the Los Angeles Times, the California Court of Appeal held that employers are allowed to enforce a “charge-back policy,” so that if a customer who subscribed to the newspaper canceled the subscription within 28 days, the employee who made the sale would receive no commission.

Charge-backs are legal:  The Court held that commissions are like wages and that, therefore, certain contractual terms could be required to be met before the commissions are considered “earned.”  In the Los Angeles Times case, the contract specifically stated that at least 28 days must pass before a sale was final and that, if there was a cancellation within that time period, there was no sale and thus no commission.  The Court held this was legal.

Advances:  The Los Angeles Times was paying its employees advances, even though the sales were not final, and therefore not “commissionable” until the 28 days had passed.  If the sale was canceled, the Los Angeles Times would deduct the amount advanced from the employee’s next paycheck.  The Court ruled that this practice was legal since the advances had not yet been earned.

The following will help prevent possible future litigation:

Spell out any specific conditions which apply to earning commissions:  Specify the terms and prerequisites that must be met before a commission is earned by a salesperson.  Make sure both the employer and the employee sign the agreement, and that both keep copies of the agreement.

Make conditions clear: Do not hide important provisions in the fine print.  Make sure your employees see them, read them, and understand them.

Don’t deduct unidentified returns:  Do not spread the cost of losses, returns, or shortages of merchandise to all employees.  Such items can be charged to a particular employee, but only if abuse or dishonesty was clearly involved.

Need more information?
ESKRIDGE LAW may be contacted by phone (310/303-3951), by fax (310/303-3952) or by email (geskridge@eskridgelaw.net.)  Please also visit our website at eskridge.hv-dev.com.

This article is based on the law as of the date posted at the top of the article.  This article does not constitute the provision of legal advice, and does not by itself create an attorney-client relationship with Eskridge Law.