Working hard to close a sale only to have your employer refuse to pay your commission is one of the most devastating experiences a California employee can face. For many salespeople, commissions aren’t just extra money, they’re the paycheck. When those commissions go unpaid, it’s devastating to the employee who built the company’s sales, and it’s often flat-out illegal under California law. Employers who play games with commissions, whether by delaying, reducing, or clawing them back, are not just bending the rules. They’re committing wage theft and abusing the very people who generate their revenue. California unpaid commissions are treated as wages, and once they’re earned, they belong to you, not your employer.
I’m Matt Ruggles, and I’ve been practicing employment law in California for more than 30 years. In that time, I’ve seen every commission scheme you can imagine including companies calling earned commissions “advances,” rewriting compensation plans after the fact, or simply refusing to pay what’s owed. I’ve helped countless California employees fight back and recover commissions their employers thought they could get away with keeping.
But here’s the key: responding effectively starts with understanding. Before you confront your employer, you need to know exactly what counts as a commission under California law and what your written compensation plan says about when commissions are earned. The very first step is determining whether the money you’re waiting on has in fact been earned. Once you know that, you can move forward with confidence and with the law on your side.
In this blog, I’ll walk you through what commissions are, when they become earned, how employers often try to avoid paying them, and most importantly, what you can do to respond if this happens to you.
Section 1: What Are Commissions under California Law?
Legal Definition of Commissions in California:
Under California Labor Code § 200, commissions are wages tied directly to the sale of a product or service. They’re typically calculated as a percentage of the sales transaction value. For example, 10% of total value each sale closed. What makes commissions distinct is that they’re earned based on measurable sales results, not at an employer’s discretion.
Commissions vs. Bonuses: Why California Treats Them Differently:
Many employers try to blur the line between commissions and bonuses, but the law treats them differently. Commissions are contractual: once you’ve met the conditions outlined in your written commission plan, the money is yours. Bonuses, on the other hand, can be discretionary i.e. an employer might decide whether to award them and in what amount. That distinction matters because commissions, once earned, cannot legally be withheld.
When Do Commissions Become “Earned” Wages in California?:
The critical question is when a commission becomes “earned.” California law requires that this be spelled out clearly in a written commission agreement. For example, is a commission earned at the time of sale, once the customer pays, or after the return period expires? Whatever the plan says, once that condition is satisfied, the commission is considered wages and must be paid.
Why the Classification of California Unpaid Commissions Matters:
Because earned commissions are treated as wages, they are subject to all of California’s wage protections. That means:
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- They must be paid at least twice a month (Labor Code § 204).
- If you’re terminated or quit, all earned commissions must be paid immediately (Labor Code §§ 201–202).
- Employers who fail to pay can face waiting time penalties and interest.
If your employer hasn’t paid the commissions you earned, contact the Ruggles Law Firm at 916-758-8058 for a free case evaluation.
Section 2: When Are Commissions Considered “Earned” in California?
This is the heart of any commission dispute. California law is clear: the moment a commission is earned, it becomes a wage, and wages belong to the employee, not the employer. But the tricky part is that “earned” is usually defined by the employer’s written compensation plan. That means the exact point in time when your right to the money locks in will depend on the wording of your agreement.
The Role of Your Written Compensation Plan
Under California Labor Code § 2751, your employer is required to put commission agreements in writing and have both you and the company sign them. That agreement must spell out how commissions are calculated, when they’re considered earned, and when they must be paid. If your employer has never given you a written commission plan, that itself is a violation of the law and it often signals they’re trying to keep things vague so they can manipulate the rules later.
Common Triggers for “Earned” Commissions
A properly drafted plan should make it clear when a commission vests. Depending on the language, this could be:
- At the close of a sale (for example, once the contract is signed).
- Upon customer payment (the commission is earned when the company gets paid).
- At delivery or installation (sometimes tied to product shipment or service completion).
Once the stated condition is satisfied, the commission becomes an earned wage. At that point, under Labor Code §§ 201–202, if you’re fired or quit, your employer must pay out every dollar of earned commission immediately. If they don’t, you may be entitled to waiting time penalties under Labor Code § 203 – up to 30 days of additional pay.
Why This Matters for California Employees
Employers often blur the line between when a commission is “earned” versus when it is simply “paid.” Those are not the same thing. For example, an employer might claim, “We only pay commissions quarterly,” but that doesn’t change when the commissions were earned under the plan. Once earned, the law treats them as wages, and delaying or refusing to pay crosses the line into wage theft.
Section 3: Understanding Your California Commission Plan
Every commission dispute starts, and often ends, with the compensation plan. Under Labor Code § 2751, California requires that employers put commission agreements in writing, give you a copy, and get your signature. This isn’t just paperwork. It’s the contract that governs when your commissions are earned, how they’re calculated, and what deductions (if any) are allowed.
Why Your Compensation Plan Controls Your Commissions
Think of the plan as the rulebook for your pay. If the plan is clear, you can hold your employer accountable when they fail to follow it. If it’s vague, missing key terms, or constantly changing, your employer has created fertile ground for abuse. I’ve seen employers deliberately keep plans ambiguous so they can reinterpret them later in a way that benefits the company, not the employee.
Common Problems in California Commission Plans
- Missing or vague terms: Some plans don’t spell out exactly when a commission is earned. That gives the employer wiggle room to say “not yet.”
- Retroactive changes: Employers sometimes issue “updated” plans in the middle of the year and try to apply them to sales you’ve already made. That’s illegal.
- Unclear chargeback provisions: If the plan doesn’t clearly say commissions can be clawed back as “advances,” then any attempt to do so after you’ve earned them is unlawful.
- Failure to provide a copy: Believe it or not, many employees never receive a written copy at all, which itself violates § 2751.
Employee Takeaway: Protecting Yourself Against California Unpaid Commissions
If you’re on commission, you should have a signed copy of your plan in your personal files. If you don’t, ask for one in writing immediately. And if your employer refuses or drags their feet, that’s a red flag. Without a clear, signed plan, the law leans in your favor. In disputes, courts and the California Labor Commissioner (DLSE) often construe ambiguities against the employer who drafted the plan.
In short, the compensation plan is both your sword and your shield. It tells you when commissions are earned and gives you the evidence you’ll need if your employer tries to dodge payment. Never rely on verbal promises or “customary practice.” In California, it’s what’s in writing that counts.
To read about a real-life case where I recovered over $1 million in unpaid commissions for a California employee, read my blog: Recovering Unpaid Commissions in California: A $1M Case Study.
Section 4: Chargebacks and Clawbacks of California Unpaid Commissions
Few things anger employees more than seeing money they already earned pulled back out of their paycheck. Employers often try to dress this up with fancy language such as “adjustments,” “reconciliations,” “recoveries” – but let’s call it what it is: a chargeback or clawback. And in California, those practices are only lawful under very narrow circumstances.
What Is a Commission Chargeback?
A chargeback happens when your employer deducts money from your future wages to offset commissions they already paid you. This usually comes up when a customer cancels an order, returns a product, or refuses to pay. Employers don’t want to eat the loss, so they push it back onto the salesperson.
When Chargebacks Are Legal in California
Chargebacks are only legal if two conditions are met:
- The commission payment was actually an advance, not an earned commission.
- The written plan expressly authorizes chargebacks for that specific situation.
For example, if your plan says commissions are advanced at the time of sale but only “earned” once the customer pays, then a clawback after a cancellation may be lawful. But again, it has to be clearly spelled out in the plan you signed.
When Chargebacks of Earned Commissions Are Illegal
California law is very protective of wages, and earned commissions are treated as wages under Labor Code § 200. That means:
- No retroactive application of new policies. Employers can’t change the rules after the fact.
- No deductions from already earned commissions. Once earned, the money is yours. Period.
- No passing normal business costs onto employees. Returns, discounts, credit card fees, or customer disputes are business risks. Employers can’t shift those costs to you by clawing back commissions.
Why It Matters for California Employees
Illegal chargebacks are one of the most common tricks employers use to shortchange sales employees. They rely on employees not knowing the difference between an advance and an earned commission. If you see deductions from your paycheck and don’t understand them, demand a full written explanation and a copy of the plan that supposedly authorizes it. If the deductions don’t line up with the plan, or if the plan language is vague, you may have a strong claim for unpaid wages, penalties, and interest.
For a deeper dive into fighting back against illegal commission chargebacks, read my blog: How to Fight Illegal Commission Chargebacks Like an Employment Lawyer.
Section 5: Common Employer Tactics to Avoid Paying Commissions in California
If there’s one thing I’ve learned in more than three decades of practicing employment law, it’s that some employers will get creative when it comes to keeping commissions that don’t belong to them. They know most employees don’t have the time, knowledge, or resources to push back, so they use confusion and intimidation to their advantage. Here are some of the most common tactics I see and why they don’t hold up under California law.
Tactic #1: Calling Earned Commissions “Advances” After the Fact
One of the oldest tricks in the book is to pay a commission and then, when it comes time to keep their promise, claim it was only an “advance.” Unless the written plan specifically defines a payment as an advance and clearly explains the conditions for repayment, that argument doesn’t hold water.
Tactic #2: Retroactively Changing the Commission Plan
Employers sometimes roll out a “new” compensation plan in the middle of the year and try to apply it to sales you already closed. That’s illegal. Under Labor Code § 2751, changes to a commission plan cannot retroactively strip you of commissions you’ve already earned.
Tactic #3: Imposing Unwritten or Vague Conditions on Payment
Another tactic is to suddenly impose new requirements that aren’t in the written plan. For example, “We don’t pay commissions unless the customer keeps the product for 90 days,” or “You must be employed on the date the customer pays.” If it’s not in the signed plan, the employer cannot enforce it. Courts and the California Labor Commissioner (DLSE) consistently hold employers to the four corners of the written agreement.
Tactic #4: Deducting Commissions to Cover Business Costs
Employers sometimes try to claw back commissions to cover things like product returns, discounts, credit card fees, or even bad debts. California law is clear: those are the employer’s business expenses, not yours. Once your commission is earned under the plan, your employer can’t take it away to cover their operating costs.
Tactic #5: Claiming a “Mistake” in the Commission Agreement
Employers may say there was an error in the commission calculation or that the written plan doesn’t reflect what they “intended.” That’s another smokescreen. If the employer drafted the agreement and you signed it, courts and agencies will interpret ambiguities against the employer—not the employee.
Tactic #6: Siphoning Off Commissions for “Partner Contributions”
A newer twist I often see is management reducing a salesperson’s commission by crediting part of the deal to a senior partner or executive. The excuse is usually that the partner “helped” close the sale, introduced the client, or “contributed strategically.” In reality, the partner often did little or nothing beyond a handshake or a name-drop. What’s really happening is the company is funneling commission dollars back to the C-suite instead of paying the salesperson who actually earned them.
Unless your written commission plan expressly authorizes reductions for partner contributions and clearly spells out how those reductions are calculated, this practice is unlawful. Even if the plan includes vague language about “management discretion,” California courts and the Labor Commissioner view ambiguity in compensation plans against the employer, not the employee. Bottom line: if you closed the sale and satisfied the plan’s conditions, your commission is an earned wage under Labor Code § 200. Your employer doesn’t get to shave it down to reward an executive’s ego.
Why California Employees Need to Recognize These Tactics
Knowing these tricks ahead of time gives you an advantage. Employers count on employees being unsure of their rights and accepting less than they’re owed. The truth is simple: earned commissions are wages. They belong to you, and no amount of employer spin changes that.
Section 6: How California Employees Can Recover Unpaid Commissions
When your commissions aren’t being paid, the worst mistake you can make is to sit back and hope your employer eventually does the right thing. They rarely do. The smartest move is to take control and document everything, confront the issue strategically, and, if necessary, escalate with the law on your side. Here’s how I advise employees to approach it.
Step 1: Review Your Commission Plan
Start with the paperwork. Get a signed copy of your commission agreement (your employer is required to provide it under Labor Code § 2751). Read it carefully to see when commissions are considered earned and how they must be paid. If your employer refuses to give you a copy, that’s a red flag and a violation of the law.
Step 2: Request a Written Reconciliation from Employer
Ask your employer, in writing, for a reconciliation of your sales and commission payments. They should provide a clear accounting of closed deals, customer payments, commissions paid, and any deductions or chargebacks. This creates a paper trail and forces the employer to take a position on what they claim is owed.
Step 3: Compare Reconciliation Report Against Your Sales Records
Don’t take their word for it. Compare the reconciliation against your own sales records, contracts, or CRM entries. Look for missing commissions, unexplained deductions, or adjustments that weren’t authorized in your plan.
Step 4: Create an Annotated Report of Unpaid Commissions
Once you’ve spotted the discrepancies, create a clean, annotated report. List each sale, the commission amount earned, what (if anything) was paid, and the total balance owed. If you see improper chargebacks or reductions (like “partner contributions”), flag those as violations of Labor Code § 200 (earned wages) and explain why the deduction is unlawful.
Step 5: Submit a Formal Written Demand for Payment
Send a professional, written demand letter to your employer. Attach your annotated report, state the total amount owed, and give them a firm deadline for payment, usually 10 to 14 days. Keep the tone professional, but don’t be vague. The point is to show you’ve done your homework and that you’re serious about enforcing your rights.
For a deeper dive into how to demand unpaid wages the right way, read my blog: How to Demand Unpaid Wages Like an Employment Lawyer.
Step 6: Avoid Common Mistakes in Commission Disputes
- Do not agree to repayment plans. These only delay and weaken your claim.
- Do not sign new agreements without legal review. Employers sometimes slip in waivers or retroactive changes.
- Do not rely on verbal promises. If it’s not in writing, it’s meaningless.
Step 7: Escalate if Necessary
If your employer ignores you or refuses to pay, you have options:
- File a claim with the California Labor Commissioner (DLSE): This is often the fastest route for small to mid-sized claims. The DLSE has the power to order payment, penalties, and interest.
- Pursue litigation in court: For larger disputes, filing a lawsuit may be the better option. California law allows employees to recover not just unpaid wages but also waiting time penalties, interest, and attorney’s fees under California Labor Code § 218.5.
Section 7: Frequently Asked Questions About Unpaid Commissions in California
Do commissions count as wages in California?
Yes. Under Labor Code § 200, commissions are considered wages once they are earned under the terms of your written compensation plan. That means they’re protected by the same laws as your paycheck. If your employer withholds them, delays them, or claws them back without a lawful basis, it’s a wage violation and not a misunderstanding.
Can my employer retroactively change my commission plan?
No. Employers cannot change the rules after you’ve already made the sale. Under Labor Code § 2751, commission agreements must be in writing and signed by both sides. Any attempt to retroactively cut commissions that were already earned is illegal. If this happens, you may be entitled to not only the commissions but also waiting time penalties and interest.
What if my employer says the commission was just an “advance”?
That’s a common tactic. Unless the written plan clearly states that the payment was an advance and spells out repayment terms, your employer cannot call an earned commission an “advance” after the fact. The California Labor Commissioner (DLSE) has repeatedly ruled that earned commissions cannot be reclassified to justify a clawback.
Can my employer deduct commissions because of returns, discounts, or customer disputes?
Not if the commission was already earned. Those are normal business expenses, and California law doesn’t let employers shift them onto employees. Unless your plan clearly defines the payment as an advance subject to reversal, deductions for returns or disputes are unlawful.
Do I need a lawyer to recover unpaid commissions?
It depends. For small amounts, you can file a claim directly with the California Labor Commissioner. But for larger claims, or if your employer is likely to fight back, having an experienced employment attorney makes a big difference. At the Ruggles Law Firm, we’ve helped employees recover unpaid commissions ranging from a few thousand dollars to over a million.
What should I do if I think my employer is cheating me out of commissions?
Document everything. Get a copy of your commission plan, collect your sales records, and put together a timeline of what you’re owed. Then contact an employment lawyer who knows commission disputes. The sooner you act, the stronger your claim.
Conclusion: Take Action on Unpaid Commissions
When your employer refuses to pay commissions you’ve already earned, it isn’t a misunderstanding, it’s often wage theft. California law is clear: once a commission is earned under your plan, it’s a wage, and your employer cannot delay, reduce, or claw it back. If they’re doing it anyway, you don’t have to just accept it.
Don’t let your hard work go unpaid. If you believe your employer owes you commissions, contact us today for a free, no-obligation consultation. We’ll review your compensation plan, your sales records, and your pay history, and give you a clear, honest assessment of your case.
Contact the Ruggles Law Firm at 916-758-8058 to Evaluate Your Potential Lawsuit
Matt Ruggles has a thorough understanding of California employment laws and decades of practical experience litigating employment law claims in California state and federal courts. Using all of his knowledge and experience, Matt and his team can quickly evaluate your potential claim and give you realistic advice on what you can expect if you sue your former employer.
Contact the Ruggles Law Firm at 916-758-8058 for a free, no-obligation evaluation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
