Proving Commission Chargebacks Are Illegal in California: A Guide for Employees

If you’re reading this, it’s probably because your employer hit you with a so-called “chargeback” and you’re wondering if it’s legal. The short answer: in most cases, it isn’t. The long answer is what I’m going to walk you through in this blog: how to prove commission chargebacks are illegal in California and what you can do about it.

One of the most common schemes employers use to cheat employees out of earned wages is to pay employees on commission, and then claim the commission was not earned and is owed back to the employer as a “chargeback” or a “clawback.” Although repayment of unearned advanced commissions can be legal in California if the employer crosses every “T” and dots every “I,” most employers don’t bother. Instead, many employers arbitrarily deduct so-called “unearned commissions” from employees and either never give a reason, or they simply rely on the employee’s lack of information and knowledge regarding proper payment of commissions – hoping the employee does not know how to take action, and therefore probably never will.

I’m Matt Ruggles and I’ve been practicing employment law in California for more than 30 years, and I’ve seen every commission scheme employers dream up. I’ve also helped countless employees recover commissions their companies thought they could get away with keeping.

I wrote this blog as a guide to help employees identify and remedy improper and illegal commission “chargebacks,” so that you have the knowledge and the basic steps to prove that the employer’s chargeback was illegal. And once you’ve proven the chargeback was illegal, the next step is knowing how to actually collect what you’re owed, something I’ll reference and link at the end of this post.

Step One: What Are Commission Chargebacks Under California Law?

When most people hear the word “chargeback,” they’re already at a disadvantage. Employers rely on that confusion. They blur the lines between “advanced commissions,” “earned wages,” and “chargebacks” so that employees don’t know which money can legally be taken back and which money is untouchable. To cut through the noise, let’s define the key terms clearly because once you understand these definitions, you’ll see exactly where most employers cross the line.

What Is a Commission Plan in California?

A commission plan is the written agreement that governs how your commissions are earned, advanced, and paid. California law requires commission plans to be in writing. They should spell out when a commission is considered “earned,” how it is calculated, and any conditions that must be met before payment becomes final.

What Is an Advanced Commission vs. Earned Wages?

An advanced commission is money your employer pays you before you’ve actually earned it under the terms of the commission plan. Think of it as a draw against a future commission. Essentially, the employer is fronting you money with the expectation that a sale or condition will close later. Advanced commissions are not legally considered wages because they are conditional.

If you’d like to learn more details about advance commissions, read my blog: What Is an Advance Commission in California?

What Is a Commission Chargeback?

A chargeback (sometimes called a “clawback”) is when the employer demands repayment of a commission that they claim was not actually earned. Employers use this term loosely, often applying it even when the commission was already earned under the plan. That’s where the abuse happens.

When Do Commissions Become Earned Wages in California?

Earned wages are commissions that have satisfied all the conditions in your commission plan. Once a commission crosses that line, from an advance to an earned wage, it transforms into money that belongs to you. Under California law, earned wages are protected as strictly as hourly pay. Employers cannot deduct, claw back, or take away earned wages under any circumstances without your express, written authorization.

What Does California Labor Code Say About Commission Chargebacks?

Advanced commissions may sometimes be subject to chargebacks if the commission plan is airtight and properly written. But once an advance transforms into an earned wage, it is yours and untouchable. Under California Labor Code §§ 200–204, commissions that have been earned are defined as wages. And under California Labor Code § 221, it is unlawful for an employer to collect, withhold, or deduct wages once they are earned.

That means any employer who tries to disguise a clawback of earned wages as a “chargeback” is not just bending the rules, they are violating California wage and hour law outright.

Examples of Legal vs. Illegal Chargebacks

Example 1: The Fully Earned Commission

Imagine you’re a salesperson at a software company. You spend months working on a contract with a client, and finally, the deal closes. The customer pays the invoice in full, and the software is delivered and installed. Your commission plan says commissions are earned once the customer has paid and the product is delivered. At that moment, your commission is no longer an “advance” and it’s earned wages under California law. Your employer cannot come back later and take that money away, even if the customer cancels the service months down the road or complains about the product. Once it’s earned, it belongs to you, and the employer clawing it back would be illegal.

Example 2: The Advance That Never Becomes Earned

Now consider a different situation. You work in retail sales and sign up a new customer for a $10,000 order. Your employer immediately gives you a $1,000 advance commission when the contract is signed, even though the customer hasn’t paid yet and the goods haven’t shipped. A week later, the customer cancels the order and never pays. Under your commission plan, the commission is only “earned” when payment is received and delivery is made. Because those conditions never happened, the $1,000 advance was never earned wages. In that case, your employer may legally claw back the $1,000 advance.

If you’d like to see how this plays out in the real world, read my blog: Recovering Unpaid Commissions in California: A $1 Million Case Study.

Step Two: What Documents Prove an Illegal Commission Chargeback in California?

If you want to prove that a commission chargeback was illegal, the first thing you need is paperwork. California law is clear that the burden falls on the employer to keep accurate payroll and commission records, but in practice, you can’t rely on them to hand everything over unless you push for it. The more complete your own file is, the stronger your case becomes. Here are the key documents you’ll need, how far back to go, and why each one matters.

Document Set #1: Commission Plans Required Under California Labor Code § 2751

Start with the commission plan in effect during the period when the commission was earned. California Labor Code § 2751 requires all commission agreements to be in writing and signed by the employer. The plan spells out the rules of the game: when a commission is considered “earned,” whether advances are paid, and what conditions have to be met before the commission becomes final.

• How far back? At least the past two to three years of commission plans, since wage claims under California law typically go back up to four years depending on the claim (three under the Labor Commissioner, four if filed in court).
• Why it matters: If your employer clawed back an earned wage, the plan will show whether you met the conditions and crossed the line from “advance” to “earned.”

Document Set #2: Pay Records and Proof of Illegal Deductions

Pull every pay stub, commission statement, and payroll record you can get your hands on. These show what you were actually paid, what was deducted, and when. If your employer took money back, it should appear as a deduction on a statement, even if they try to disguise it with vague language like “adjustment” or “reconciliation.”

• How far back? Again, three to four years, to line up with the statute of limitations on unpaid wage claims.
• Why it matters: Pay records create a paper trail of both earned commissions and illegal deductions. They also lock the employer into their story if they say they didn’t take your money, but your pay stubs show otherwise, you’ve got proof.

Document Set #3: Employee Handbook Promises on Commissions

While not as critical as your commission plan and pay stubs, your employee handbook may contain important language about wages, commissions, or deductions. Even vague policy statements can be used to show inconsistency or bad faith by your employer.

• How far back? Whatever version was in effect when your commission was earned.
• Why it matters: If the handbook promises commissions will be paid when earned, or makes no mention of chargebacks, that strengthens your argument that any deduction was unauthorized.

Document Set #4: Emails and Correspondence as Evidence of Illegal Chargebacks

Don’t overlook emails, texts, or Slack messages. If you complained about a missing commission, asked for an explanation, or were given one, save those records. They can show whether your employer admitted the commission was earned or whether they’re scrambling after the fact to justify a clawback.

• How far back? Any correspondence related to the disputed commission.
• Why it matters: Employers often change their story. Emails lock them into what they told you at the time.

Step Three: How to Read Your Commission Plan and Spot Illegal Chargebacks

You win or lose most commission disputes on the paperwork. Your plan is the rulebook. Read it like a skeptic, mark it up, and line it up against your facts. You are looking for three things.

Term #1: Advance Commission Clauses to Watch For

What to find: Any clause that says part of the commission is an “advance,” a “draw,” “recoverable draw,” “fronted payment,” “prepayment,” or “subject to chargeback.”

Why it matters: Advances are not wages yet. They can be reversible if, and only if, the plan is crystal clear about the conditions that must occur before the money is “earned.” California requires commission agreements to be in writing (Labor Code § 2751). If the plan never calls a payment an “advance,” or never explains when an advance becomes earned, your employer will have a hard time justifying a clawback under Labor Code §§ 221 and 224.

How to analyze it:

• Highlight every place the plan uses “advance,” “draw,” or “recoverable.”
• Circle the conditions tied to conversion from advance to earned, for example shipment, customer payment, installation, acceptance, or the close of a chargeback window.
• Note who has discretion. If a manager can “determine” earnings after the fact with no criteria, that is a red flag.
• Watch for timing tricks. “Employed on the last day of the month” often controls payment timing, not whether the commission was earned. Some plans try to mash those together.

Common red flags:

• Catch-all clauses like “subject to adjustment for any reason.”
• Undefined terms such as “funding,” “booking,” or “activation.”
• Clauses that let the company re-label an earned commission as an “advance” months later.

What to copy into your file: The exact “advance” definitions and every condition listed next to them.

Term #2: Chargeback Scenarios Employers Use

What to find: Every scenario where the company says it will take money back. Look for headings like “Chargebacks,” “Reconciliation,” “Returns and Cancellations,” “Non-payment,” “Fraud,” “Bad Debt,” “Post-termination.”

Why it matters: Employers can only claw back unearned advances under clear, narrow scenarios. If your commission was earned under the plan, it is a wage and is not subject to chargeback without your express, written authorization (Labor Code §§ 200–204 and § 221).

How to analyze it:

• Make a list of each trigger and write a one-line translation.
  • “Customer cancels within 30 days” means an advance can be reversed if cancellation occurs in that window.
  • “Non-payment after 90 days” ties reversals to a specific delinquency period.
  • “Returns” should specify time limits and apply only to goods actually returned.
• Demand specificity. If the plan does not define the window, the event, or the proof required, the clawback is suspect.
• Separate “earned” from “payable.” A clause that delays payment does not convert an earned wage back into an advance.
• Post-termination clauses. Many plans say no payment if not employed at month-end. That may control when you are paid, not whether the commission was earned earlier under the plan’s earning event.

Common red flags:

• “At company discretion” with no standards.
• Open-ended chargeback periods, for example “at any time in the future.”
• Using partner disputes or internal policy violations as a reason to reverse commissions that met the earning event.

What to copy into your file: Each chargeback trigger, the time window, and the proof the company must have before reversing anything.

Term #3: When Commissions Become Earned Wages Under California Law

What to find: The clause that answers the only question that matters: When is the commission earned? Look for “earning event,” “vesting,” “commission is earned when,” “becomes non-recoverable,” or “no longer an advance.”

Why it matters: Once you satisfy the plan’s earning conditions, the money becomes earned wages. Under California law, earned wages belong to you and cannot be taken back without your express written authorization (Labor Code §§ 200–204, § 221, and § 224 on deductions).

How to analyze it:

• Identify the earning event. Common examples: shipment to the customer, customer payment received, completion of installation or acceptance, expiration of a return window.
• Confirm whether “employment on last day of the month” is an earning condition or only a payment timing condition. If the plan says the commission is earned on shipment and payment, you hitting that milestone matters more than a payroll cut-off.
• Tie the earning event to your evidence. Match invoices, shipping records, customer payments, and acceptance emails to the dates in your plan.
• Watch for conflicts inside the plan. If one page says “earned at shipment,” and another page calls the same money “recoverable” after shipment, note the inconsistency.

Common red flags:

• Blurring earned versus payable, for example “commissions are earned and payable at month-end only if employed,” with no prior earning event.
• Retroactive re-labeling, for example calling paid commissions “advances” months later without a defined trigger.

What to copy into your file: The exact “earned when…” sentence and every document that shows you satisfied that condition.

Step Four: How to Use Pay Records to Prove Illegal Commission Chargebacks

This is where you line your paperwork up against the plan and test every “chargeback” the company took. Move methodically. Treat each deduction like its own mini-audit.

1) Confirming the Correct Commission Plan Applies

Most companies refresh plans annually. If the commission was earned under Plan A, you evaluate it under Plan A, not a newer version the company prefers now.
Do this:

• Pull every plan and add effective dates at the top in big letters.
• Match the earning event date for the commission to the plan in force on that date.
• If dates overlap or the company rolled out “amendments,” note the rollout email and the first paycheck that used the new rules.

2) Listing Chargebacks and Matching Them to Payments

You cannot evaluate what you cannot see. Build a simple log.
Do this:

• From pay stubs and commission statements, extract: pay date, period covered, deal name or ID, amount paid, and later “chargeback” amount.
• Watch for vague line items like “adjustment,” “true-up,” or “reconciliation.” Treat them as potential chargebacks until proven otherwise.
• Keep copies of the original statements and the reversal statements side by side.

3) Testing Whether a Payment Was an Advance or Earned Wages

Only advances are clawback candidates. Earned wages are not.
Do this:

• Copy the plan’s exact definition of “advance,” “draw,” or “recoverable commission.”
• Compare that definition to the paid item. If the plan does not clearly label that payment as an advance at the time it was paid, you have leverage.
• Red flags: the company re-labels a paid, earned commission as an “advance” months later, or relies on manager “discretion” with no criteria.

4) Proving When Advances Became Earned Wages

This is the fulcrum. If the plan’s earning conditions were satisfied before the reversal, the money is earned wages and off-limits without your express, written authorization.
Do this:

• Find the plan’s “commission is earned when …” sentence.
• Gather proof for that earning event: shipment confirmations, delivery/installation acceptance, customer payment, ticket closures, funding approvals, whatever your plan uses.
• Build a one-line timeline for each deal:
  Milestone (with date) → Evidence → Matches plan condition? (Yes/No)
• If “Yes,” mark the chargeback improper and cite Labor Code §§ 200–204 and § 221 in your notes.
• Separate earned from payable. A clause that delays payment to month-end does not convert earned wages back into advances.

5) Checking Employer “Exceptions” Against California Law

Plans often list narrow events that permit reversing an advance, for example customer non-payment within 90 days, returns within 30 days, fraud, or duplicate credit.
Do this:

• List each exception with its time window and proof required.
• Ask: Did the specified event occur, within the window, with evidence? If not, the exception fails.
• Demand specificity. “At company discretion” or “for any reason” is not a valid catch-all to take earned wages.

Common employer tactics to flag

• Using a new plan to retroactively govern last quarter’s payments.
• Claiming “partner dispute” or “internal policy issue” as a reason to reverse a commission that already hit the earning event.
• Open-ended chargeback windows with no dates.
• Turning a payment-timing rule (“must be employed on last day of month to be paid”) into an earning rule.

Step Five: How to Chart and Prove Commission Chargebacks Are Illegal

You have the plan and you have the pay records. Now you need a one-glance summary that proves which chargebacks are illegal. Treat each reversal like a mini case file and distill it to a single, clear conclusion. Since a wide table will not fit here, use the steps below to build your own compact summary in a spreadsheet or notes doc.

Step 1: Building a Chargeback Summary Spreadsheet

1. • Pull the date, amount, client, and deal ID from pay stubs and commission statements.
   • Flag vague entries like “adjustment,” “true-up,” or “reconciliation.” Treat them as chargebacks until proven otherwise.

Step #2: Match Evidence to the Commission Plan

1. • Use the plan that governed the earning event, not a newer plan.
   • Write the effective dates at the top of each plan. Note any amendments and the first paycheck that used the new rules.

Step #3: Label the payment type using the plan’s own words

1. • Quote the exact term and section number, for example “recoverable draw until customer payment” (Plan §2.3).
   • If the plan did not label the payment as an advance when it was paid, treat it as wages, not a recoverable advance.

Step #4: Test the earning event against your evidence

1. • Find the sentence that says “commission is earned when …”
   • Tie it to proof: shipment confirmations, customer payments, installation or acceptance, or the expiration of any return window.
   • Build a two-line timeline for each deal:
     • Earning event in plan: “Earned at shipment and payment.”
     • Evidence: “Shipped 05/20, paid 05/25. Documents attached.”

Step #5: Check any exception the company cites

1. • Common exceptions are cancellation within a set window, non-payment after a set number of days, returns, or fraud.
   • Demand dates and proof. If the plan’s window was not met, or the event never happened, the exception fails.
   • Separate earned from payable. Month-end employment rules usually govern timing of payment, not whether the commission was earned earlier.

Step #6: Write a one-sentence conclusion for each chargeback

1. • Use this template for an improper reversal:
     • “Reversal on [date] of $[amount] for [deal] is improper because [Plan §X.X] defines the earning event as [shipment/payment/acceptance], which occurred on [dates], and no exception in [Plan §Y.Y] applies. This is an unlawful deduction of earned wages under Labor Code §§ 200–204 and § 221. Plan must be in writing under § 2751.”
   • Use this template for a proper reversal of an advance:
     • “Reversal on [date] of $[amount] for [deal] aligns with [Plan §X.X] because payment was a recoverable advance and the customer canceled within the [number]-day window on [date].”

Step Six: How to Demand Repayment of Illegal Commission Chargebacks

Here is exactly how I would do it:

Goal

You are putting the employer on notice that they took earned wages and you expect prompt repayment. Keep it factual, precise, and calm. No venting. Your leverage comes from the documents and the law.

Tone

Professional, firm, and solutions-oriented. Assume a reasonable person in HR or payroll will read it first. You are giving them everything they need to fix this without a fight.

What to attach

• Your Chargeback Summary for each reversal
• The applicable commission plan pages that define “advance,” “earned,” and any exceptions
• Proof of the earning event: invoices, payment confirmations, shipment or delivery records, acceptance emails

Name the attachments clearly, for example: Chart_A_Chargebacks.pdf, Plan_A_Sections_2_3.pdf, Evidence_Payment_0525.pdf.

Delivery

Send by email to HR and Payroll, copy your manager, and send a hard copy by certified mail. Save PDFs of everything you send.

What your demand must cover

• The specific amounts and dates at issue
• The plan language that shows the commissions were earned and no longer recoverable
• The Labor Code sections that make clawbacks of earned wages unlawful
• A clear deadline to correct and pay
• A records request so they cannot claim confusion later
• A short litigation hold paragraph so the evidence does not disappear
• A non-retaliation reminder

Sample Demand Letter

Subject: Demand to Reverse Unlawful Commission Chargebacks and Pay Earned Wages

[Your Name]
[Your Address]
[City, State ZIP]
[Email] | [Phone]
[Date]

Human Resources and Payroll
[Employer Name]
[Employer Address]
[City, State ZIP]

Re: Unlawful commission chargebacks of earned wages

To HR and Payroll,

I am writing to request correction of unlawful commission chargebacks that reversed earned wages in violation of California law.

Background and amounts. On the pay dates listed in the attached Chart A, I was paid commissions for specific deals. On later dates, the company deducted matching amounts labeled as “chargebacks,” “adjustments,” or similar. Chart A identifies each reversal by date, amount, client, and deal ID, and it cites the governing commission plan in force when the commission was earned.

Plan terms and earning event. The applicable commission plan, effective [plan dates], states that commissions are earned when

. For each item in Chart A, the earning event occurred on the dates shown, supported by the attached invoices, payment confirmations, shipment or delivery records, and acceptance emails. The plan does not label these payments as recoverable advances after the earning event, and no stated exception applies.

Legal basis. Under Labor Code §§ 200–204, earned commissions are wages. Under Labor Code § 221, an employer may not collect or receive any part of wages previously paid. Deductions require my express, written authorization under Labor Code § 224, which I did not provide. Attempting to re-characterize earned wages as “chargebacks” violates these statutes.

Demand. Please:

1. Reverse the chargebacks and pay $[principal total] in earned commissions within 15 calendar days.
2. Issue corrected wage statements under Labor Code § 226.
3. Confirm in writing that no further deductions will be taken for these items.

Records. Within 21 days, please provide:

• All wage and commission statements for the periods in Chart A, as required by Labor Code § 226(c)
• Any signed commission agreements and amendments under Labor Code § 2751
• Any internal record the company relied on to justify these chargebacks

Employment status notes.

• If I am no longer employed, please also address waiting-time penalties under Labor Code §§ 201–203.
• If I am currently employed, please correct on the next payroll and confirm the date of payment.

Preservation. Please preserve all potentially relevant documents and communications, including emails, chats, CRM entries, shipment logs, invoices, and payroll records relating to these commissions and chargebacks.

Non-retaliation. California law prohibits retaliation for asserting wage rights under Labor Code § 98.6. I expect the company to resolve this professionally.

I prefer to resolve this directly. If I do not receive written confirmation and payment by the deadline above, I will consider filing a claim to protect my rights.

Sincerely,

[Your Name]

Attachments:
Chart A – Chargeback Summary
Plan Excerpts – Earning and Chargeback Clauses
Evidence – Invoices, Payments, Shipments, Acceptances

Quick checklist before you send

• Your total matches the sum of the items in Chart A
• You quoted the plan exactly with section numbers
• Your evidence is labeled and easy to match to each item
• The deadlines are reasonable and dated
• You kept the tone professional and avoided threats

Frequently Asked Questions About Commission Chargebacks in California

Are commission chargebacks legal in California?

Yes, but only if your commission plan clearly spells them out in writing and they follow California labor laws. If the chargeback takes back already earned wages, it’s illegal.

What is the difference between an advance commission and an earned commission?

An advance commission is money your employer pays before it’s actually earned, while an earned commission is final once you’ve met the conditions in your plan. Earned commissions are wages under California law and cannot be clawed back.

Can my employer deduct commissions for a client who cancels or doesn’t pay?

Only if your commission plan specifically allows it and the commissions were still advances. If you had already earned them under the plan, your employer cannot take them back.

What documents do I need to prove an illegal commission chargeback?

Your written commission plan, pay stubs, and any emails or HR documents explaining chargebacks are critical to showing whether deductions are legal or not.

What should I do if I think my commission chargebacks are illegal?

First, review your commission plan against California labor law. Then, gather pay records and correspondence. Finally, consider making a demand in writing or contacting an employment lawyer to enforce your rights.

Bottom line: You are giving the employer a clean path to fix an unlawful deduction problem. Clear facts, exact plan language, and the right Labor Code cites are what get you paid.

If you believe your employer’s commission chargebacks are illegal, contact the Ruggles Law Firm today for a consultation.”

For further reading on this topic, read my blog: How to Fight Illegal Commission Chargebacks Like an Employment Lawyer.

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.