Some California employers are stealing employees’ hard-earned wages under the false claim that commissions are merely “advances” — even when those commissions have already been earned. By disguising illegal deductions as lawful commission chargebacks, these employers manipulate their commission plans to recover costs, unfairly reducing employees’ pay.
This tactic often leaves employees shocked when they discover their paychecks are lighter than expected — not because they failed to earn commissions, but because their employer wrongfully claimed the right to claw those commissions back.
California law protects employees from this deceptive practice, but only if employees understand their rights. Knowing when a commission is truly earned — and when a so-called “advance” is just a cover for wage theft — is critical to protecting your income.
What is the Law in California About Commission Chargebacks?
Under California law, employers may lawfully make chargebacks against advanced commissions if they meet specific legal criteria. Key cases have clarified the conditions that must be met:
- Written Agreement Requirement (Koehl v. Verio, Inc.)
- In Koehl v. Verio, Inc., the court ruled that employers can lawfully charge back commissions if the employer and employee had a clear written agreement that commissions were considered advances and subject to chargebacks if certain conditions were not satisfied. Without this explicit agreement, a chargeback may violate California Labor Code § 221, which prohibits employers from taking back wages that have already been paid.
- Defining When a Commission is Earned (DeLeon v. Verizon Wireless, LLC)
- In DeLeon v. Verizon Wireless, LLC, the court upheld a system where Verizon paid employees “advanced” commissions only if certain conditions were satisfied. If a customer canceled their contract within a defined period, Verizon deducted the previously advanced commission. Because Verizon’s written policy clearly defined these payments as advances, they were not considered earned wages until all conditions were met. The court ruled this practice lawful since the conditions for earning the commission were clear.
- Illegal Chargeback Practices (Hudgins v. Neiman Marcus Group, Inc.)
- In Hudgins v. Neiman Marcus Group, Inc., the court ruled against an employer that reduced employees’ wages through an unlawful chargeback system. Neiman Marcus deducted commissions to offset the costs of merchandise returns — even when employees had no control over those returns. The court ruled this practice violated California wage laws because these deductions were unrelated to whether the commission was earned and instead shifted the employer’s cost of doing business to employees.
- Linking Chargebacks to Business Costs is Unlawful (Sciborski v. Pacific Bell Directory)
- In Sciborski v. Pacific Bell Directory, the court ruled that employers may not use chargebacks to recover business costs unless the employee agreed in writing and the chargeback was tied directly to the sale itself. A deduction that offsets routine business costs — unrelated to the employee’s commission performance — is considered unlawful under California law.
Examples of Illegal Chargeback Practices in California
Even if an employer has a written commission policy, the following practices are typically unlawful in California:
- Deducting commissions to cover product returns that the employee had no control over.
- Using chargebacks to offset business expenses, such as advertising costs, customer discounts, or transaction fees.
- Attempting to recover previously paid commissions without a clear written agreement specifying that commissions are advances.
- Making chargebacks from base wages — base pay is protected by California law and cannot be reduced to recover commissions.
Key Takeaways for California Employees About Commission Chargebacks
If you earn commissions in California, keep these important points in mind:
A Written Agreement is Required:
Any employer attempting to recover previously paid commissions must have a clear written agreement stating that the commission is an advance and that chargebacks will apply if certain conditions are unmet.
Your Employer Must Specify Conditions for Earning Commissions:
Employers cannot simply claim a commission was not “earned” without identifying clear conditions in writing (e.g., customer retention for a defined period or successful contract fulfillment).
Base Wages Cannot Be Reduced:
Employers may not deduct chargebacks from your base wages or reduce your hourly or salary pay to recover commissions.
Unlawful Business Cost Shifting:
Employers cannot use chargebacks as a tool to shift general business costs onto employees, such as credit card processing fees, marketing costs, or product returns outside the employee’s control.
Transparency is Required:
Employees have the right to receive clear, itemized pay statements that outline commissions earned, chargebacks applied, and the basis for those deductions.
What to Do If You Believe Your Employer is Violating the Law Regarding Charge-backs
If you believe your employer is improperly deducting wages or misapplying chargebacks:
Review Your Commission Agreement:
Identify if your agreement meets the legal requirements for valid chargebacks.
Document the Violations:
Keep detailed records of your commission earnings, pay statements, and any deductions.
Communicate with Your Employer:
If you spot discrepancies, raise your concerns in writing to your employer.
Seek Legal Advice:
If your employer continues to engage in unlawful practices, consult with an experienced employment lawyer to assess your options.
FREQUENTLY ASKED QUESTIONS ABOUT CALIFORNIA COMMISSION CHARGE-BACKS
Can my employer take back my commission if the customer cancels their order?
Yes, but only if your employer has a written agreement stating that your commission is considered an advance and the customer must meet certain conditions (e.g., maintaining service for a set period) for you to earn the commission. Without this written agreement, chargebacks for cancellations are likely illegal.
Is it legal for my employer to deduct commissions for product returns?
No, unless your written commission plan clearly defines commissions as advances and outlines the conditions under which they may be reversed. Even with a written agreement, if the return is outside your control, the chargeback may be unlawful.
Can my employer reduce my hourly wages or salary to recover commissions?
No. California law prohibits employers from deducting chargebacks from your base wages. Any deductions must come from future commission advances — not your guaranteed wages.
What if my employer claims my commission is an “advance” after the fact?
Employers cannot retroactively claim that an earned commission was actually an “advance” unless you signed a clear written agreement outlining those terms beforehand. Without this, any attempt to reclaim commissions is likely illegal.
Are employers allowed to deduct commissions to cover their business expenses?
No. Chargebacks cannot be used to pass normal business costs — such as advertising expenses, credit card fees, or marketing costs — onto employees. These deductions are generally unlawful under California law.
What should I do if I think my employer is illegally deducting my commissions?
Take these steps:
- Review Your Commission Agreement to check for language about “advances” and conditions for earning commissions.
- Document Everything — track your pay statements, commission earnings, and deductions.
- Communicate with Your Employer — ask for a detailed explanation in writing.
- Contact an Employment Attorney if your employer refuses to correct the issue or continues unlawful deductions.
Can my employer change the commission policy to include chargebacks?
Yes, but the change must be in writing, and you must agree to it. An employer cannot unilaterally apply new chargeback rules to commissions you’ve already earned.
Are commission-based employees entitled to itemized wage statements?
Yes. California law requires employers to provide detailed wage statements showing your commissions, deductions, and the reason for those deductions. If your employer fails to provide this information, they may be violating California wage laws.
What if I quit my job — can my employer still take back my commissions?
An employer cannot deduct commissions already earned unless your written agreement clearly defines those commissions as advances and includes post-employment recovery terms.
Are there penalties for employers who violate commission laws in California?
Yes. If your employer unlawfully withholds your earned commissions, you may be entitled to recover those wages plus interest, penalties, and possibly attorney’s fees.
Conclusion
Commission-based employees in California must stay informed about the laws governing their pay. Understanding when charge-backs are lawful — and when they are not — can help you safeguard your earnings and protect your rights in the workplace.
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 consultation.
Blog posts are not legal advice and are for information purposes only. Contact the Ruggles Law Firm for consideration of your individual circumstances.
