If you work in sales or any role where commissions make up part of your compensation, it’s essential to understand your rights under California law. A commission dispute over unpaid or charged back commissions is common—and often arises when employers fail to follow the written compensation plan that governs when commissions are earned and how they are paid.
This blog explains what qualifies as a commission under California law, what a commission dispute looks like, and outlines six practical steps California employees can take to resolve these disputes. Whether you’re trying to recover withheld commissions or clarify your compensation rights, this guide will help you navigate the process and assert your legal protections.
What Is a Commission in California?
In California, a commission is a form of compensation that typically is earned based on a percentage of the price of a product or service that the employee sells. Unlike discretionary bonuses or performance-based incentives that an employer may choose to give or withhold, commissions are wages once the conditions of the commission plan are satisfied. Once earned under the terms of a valid agreement, commission payments become “earned wages” and and cannot be taken away by the employer.
California law strictly regulates how commissions are handled. If an employer pays commissions, they must provide the employee with a written commission agreement (also called a compensation plan or commission plan) that clearly outlines the method by which commissions are calculated, earned and paid. This written agreement must be signed by the employee, and the employer must provide a copy of it to the employee for their records.
The commission plan controls the entire commission relationship. It defines not only how commissions are earned, but also when they are earned, when they are payable, and under what circumstances the employer may deduct from, delay, or reverse a commission payment. For example, the plan may state that a commission is only earned once the customer has paid in full, or it may allow for partial “advances” that are reconciled later.
A well-drafted compensation plan will include definitions for terms such as:
- Earned commissions – the point at which a commission becomes owed
- Advanced commissions – front-loaded payments that may be subject to chargeback if sales fall through
- Commission Chargebacks – deductions taken back from future wages or commissions
- Payment schedule – how often and when commissions will be paid
Because earned commissions are wages under California law, any failure by the employer to follow the written commission agreement may result in legal liability. If the agreement is unclear, incomplete, or silent on a particular issue, courts and the California Labor Commissioner generally interpret those ambiguities in favor of the employee.
This is why understanding the compensation plan is the first and most critical step in resolving any commission dispute. The written plan controls the employer’s obligations, the employee’s rights, and the legal remedies available when commissions are not properly paid.
What Is a Commission Dispute?
A commission dispute arises when an employer fails to honor the terms of a written commission agreement. Common issues include:
- Failing to pay commissions that were earned
- Applying unauthorized deductions or chargebacks
- Withholding payment based on conditions not stated in the agreement
- Retroactively changing the compensation plan
- Refusing to provide an accounting of commission payments
Most commission disputes occur when an employer attempts to deviate from the written compensation plan or enforce unwritten terms, verbal modifications, or post-sale conditions that were never agreed to in writing. California law requires commission agreements to be clear, express, complete, and in writing. When employers impose new conditions—such as delaying payment, altering commission rates, or conditioning payment on customer satisfaction—without updating the written agreement, the employer’s actions may be unlawful.
At the heart of most disputes is whether the employer followed the written terms or improperly modified them to avoid paying earned wages.
6 Key Steps to Resolve a Commission Dispute in California
Dispute Resolution Step 1: Understand the Commission Plan
The first step in resolving any commission dispute is to carefully review your written commission plan. This document controls the entire compensation structure for your commissions. Pay close attention to the specific terms that explain:
- When a commission is earned
- When it becomes payable
- Any conditions or contingencies for payment
- Whether clawbacks or chargebacks are permitted
- How disputes are to be handled, if addressed
If your employer has failed to follow the terms of the agreement, that failure may form the basis of a valid claim for unpaid wages. A thorough review and understanding of the commission plan lays the groundwork for evaluating whether your commissions have been properly paid or unlawfully withheld.
Dispute Resolution Step 2: Obtain a Reconciliation of Commission Payments from Employer
Once you’ve reviewed and understand the commission plan, the next step is to formally request a reconciliation of your commission payments from your employer. This is a detailed accounting that should show exactly how each commission was calculated and paid in accordance with your written compensation plan.
The reconciliation should include:
- Each sale or transaction that is tied to a commission
- The date of each sale
- The commission rate applied
- The amount of commission earned per transaction
- The date and amount of each commission payment issued
- Any deductions, adjustments, or chargebacks applied
- Explanations for any withheld or reversed commissions
California employees have the right to receive a transparent breakdown of how their wages—including commissions—are determined and paid. By comparing the reconciliation to your own records and the terms of your commission plan, you can identify whether your employer has underpaid you, miscalculated your commissions, or taken improper deductions. This step is essential for building a factual foundation for your claim.
Dispute Resolution Step 3: Identify Unpaid Commissions & Illegal Chargebacks
Carefully compare the employer’s reconciliation to your own sales records, invoices, and the written commission agreement. Your goal is to identify:
- Commissions that were earned but not paid
- Underpaid commissions due to miscalculations
- Improper deductions or chargebacks that are not authorized by the agreement
- Payments that were delayed or withheld without justification
In California, employers are not allowed to deduct from an employee’s earned wages unless the deduction is authorized by law or by a clear written agreement. If your employer has taken back commissions after they were earned—without specific authorization in the commission plan—those unauthorized chargebacks may constitute unlawful wage deductions or wage theft.
Identifying these discrepancies is essential. It allows you to quantify how much you are owed and creates a factual basis for demanding payment or filing a legal claim.
Dispute Resolution Step 4: Create Annotated Report of Unpaid Commissions & Illegal Chargebacks
Prepare a comprehensive and organized report that documents each instance where you believe the employer failed to pay earned commissions or made improper deductions. This report should include:
- The date of each sale or transaction
- The commission amount that should have been paid
- The amount actually paid (if any)
- Any unauthorized deductions or chargebacks
- The specific provision(s) of the commission plan that support your position
- Copies of relevant supporting documents, such as sales records, pay stubs, and the commission agreement
Each entry in your report should be annotated, meaning that you explain or comment on why the payment was improper or incomplete. For example, if a commission was withheld because a customer canceled a sale, but the commission plan does not allow chargebacks in that situation, your annotation would point to that inconsistency and cite the relevant commission agreement language.
Creating an annotated report not only demonstrates that your claim is based on evidence and reasoned analysis—it also helps employers, legal representatives, or government agencies quickly understand the nature of your dispute. A well-organized report adds credibility to your position and increases the likelihood of a successful resolution.
Dispute Resolution Step 5: Submit Report to Employer and Set Deadline for Response
Once your annotated report is complete, submit it to your employer in writing, either by email or certified mail, so you have proof of delivery. Clearly state:
- That you are requesting payment of specific unpaid commissions or reversal of improper deductions
- The total amount you believe is owed
- The basis for your request, referencing the commission plan and any supporting documentation
- A reasonable deadline (typically 10–14 days) for the employer to respond or take corrective action
Providing this written report gives the employer an opportunity to correct the issue without legal intervention, which may lead to a faster resolution.
This step also establishes that you are acting reasonably, diligently, and in good faith. Should the matter escalate to a formal legal claim, your written submission can demonstrate that you made every effort to resolve the dispute cooperatively before seeking outside help.
Dispute Resolution Step 6: Submit Claim to Court and/or Labor Commissioner
If your employer fails to respond to your written demand or refuses to pay what you are owed, the next step is to pursue a formal legal claim. In California, commission disputes are treated as wage claims, and you have two primary options:
- File a claim with the California Labor Commissioner (part of the California agency known as the Division of Labor Standards Enforcement (DLSE)), which provides a relatively accessible and cost-effective forum for resolving wage disputes without needing a lawyer. However, the Labor Commissioner claim process can take 18-24 months from filing to award.
- File a civil lawsuit in court, which is often necessary for more complex claims or when larger amounts are at stake. This route usually requires you to retain an experienced employment lawyer, as court procedures are more formal and legal representation can significantly improve your chances of success.
Under California law, if you prevail in your claim, you may be entitled to recover:
- The unpaid commissions
- Interest on the unpaid wages
- Waiting time penalties for late payment of final wages
- Attorney’s fees and costs, if allowed by law or contract
Whether you pursue your claim through the Labor Commissioner or the courts, your preparation in the earlier steps will be crucial in presenting a strong, evidence-based case.
FREQUENTLY ASKED QUESTIONS ABOUT COMMISSION DISPUTES IN CALIFORNIA
Do commission payments count as wages in California?
Yes. In California, commissions are legally considered wages once they are earned under the terms of a valid, written commission agreement. This means that failure to pay earned commissions is treated the same as failing to pay hourly wages or a salary—and may subject the employer to penalties, interest, and liability for wage theft. However, “advanced commissions” are not wages until the commissions are “earned” pursuant to the terms of the commission plan.
Can my employer change the commission plan retroactively?
No. California law prohibits employers from retroactively altering a commission agreement to deny or reduce commissions that were already earned. Any changes to the commission plan must be in writing and apply only going forward. If your employer attempts to change the rules after the fact to avoid paying you, that conduct may be unlawful.
What if my commission plan is vague or doesn’t address certain situations?
If a commission agreement is unclear, silent on key terms, or ambiguous, California law generally interprets the agreement in the employee’s favor. Courts and the Labor Commissioner will look to the overall conduct of the parties and the intent of the agreement, but they err on the side of protecting employee rights when an employer fails to clearly define the terms.
Do I need a lawyer to pursue a commission claim?
Not always. You can file a claim with the California Labor Commissioner on your own, especially for smaller or straightforward disputes. However, for larger claims, complex commission structures, or situations involving significant unpaid wages or legal violations, it’s often wise to consult an experienced employment lawyer who can guide you through the legal process and help you recover what you are owed.
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.
