If you earn commissions in California, you may have heard the term “chargeback” or “clawback” —when an employer takes back a commission you’ve already been paid. But is that legal? And under what conditions can your employer reclaim money from your paycheck?
This blog explains how commission chargebacks work under California law, when they’re allowed, and what your rights are if you face one.
What Is a Commission Chargeback?
A commission chargeback (sometimes called a “clawback”) occurs when your employer deducts a previously paid commission from your future wages. This might happen if a customer cancels, returns a product, or fails to pay. Employers may also assess chargebacks if your employment ends before post-sale conditions are met.
Under California law, a permissible “chargeback” can only apply to advanced commissions—payments made before the commission is legally earned under your written compensation plan. Once a commission is earned, it becomes “earned wages,” and it is unlawful for your employer to take it back.
Are Commission Chargebacks Legal in California?
Yes, but only in limited circumstances. California law permits commission chargebacks only when:
- The initial commission payment expressly was an advance, not an earned commission; and
- The written commission agreement clearly explains that advances may be recovered through chargebacks under express, specified conditions.
If a commission is already earned under your compensation plan, it is considered earned wages. Earned wages may not be deducted or clawed back by the employer, regardless of whether the company retained the underlying sale or business for which the commission was earned. Attempting to recover commissions that have become earned wages is a violation of California’s Labor Code.
Examples of Advanced Commission Chargebacks
Chargebacks may be lawful in these scenarios, but only if the commission was an advance and the commission plan is express and clear:
- A commission paid before a product is delivered, and the customer cancels the order
- Payment issued upon contract signing, but the client later defaults before installation
- An advance given at the start of a deal cycle, with recovery rights if the sale falls through
If your employer is reclaiming money from your paycheck for other reasons—and the commission was already earned—you may have a claim for unpaid wages.
What Your Commission Plan Must Include
To legally recover an advanced commission, your employer’s commission agreement must:
- Be in writing and signed by the employee
- Clearly define when a commission is advanced and when it is considered earned
- State that advances may be recovered under certain conditions
- List the specific criteria for commission chargebacks to advanced commissions
- Comply with California laws regarding final pay and deductions
Unwritten, unclear, or one-sided agreements may be unenforceable, resulting in the determination that all commission payments were earned wages because the commission plan failed to expressly specify that initial commissions were “advances,” or failing to list the specific chargeback provisions.
What You Can Do If You’re Facing an Illegal Commission Chargeback
If your employer has charged back commissions, take these steps:
- Request a copy of your commission agreement
Understand how your compensation plan defines “earned” and whether the payment was an advance. - Keep records of all sales and payments
Track your commissions, client cancellations, and pay statements. - Review your final paycheck carefully
California law restricts what can be deducted after termination. - Consult an employment attorney
If your employer took back wages that were already earned, you may be entitled to recover those amounts.
Conclusion
Under California law, commission chargebacks are only legal if they apply to advances—not earned commissions. Once earned, a commission becomes a wage, and your employer cannot take it back.
If you’ve experienced a chargeback, don’t assume it was lawful. You may have a claim for unpaid wages.
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 courts 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.
