Assembly Bill (AB) 496, effective on January 1, 2012, expands an employer's disclosure obligations regarding wage-related issues. Specifically, AB 496 adds a Labor Code provision requiring employers to provide each new employee, when hired, with a notice that identifies:
- the rate and the basis of the employee's wages, whether hourly, salary, commission, or otherwise;
- any allowances claimed as part of the minimum wage, including meal or lodging allowances;
- the employer's regular payday;
- the name, including any "doing business as" names, of the employer;
- the physical address of the employer's main office or principal place of business, and a mailing address, if different;
- the telephone number of the employer;
- the name, address and telephone number of the employer's workers' compensation insurance carrier; and
- any other information required by the Labor Commissioner.
Pursuant to the new statute, the Labor Commissioner will develop a template form for use by employers. Employers must also notify each employee in writing of any changes to the disclosed information set within seven calendar days of the change unless the change is otherwise reflected on a timely wage statement or legally required written statement.
The California Legislature also recently passed AB 1396, which imposes important new requirements regarding employees paid on commission. AB 1396 revives part of a previous law struck down in 1999 because the earlier law impermissibly singled out employers who did not have a fixed place of business in California. Beginning January 1, 2013, all California employers must provide written employment contracts to employees providing services within California where "the contemplated method of payment of the employee involves commissions." The contract must describe the method by which commissions are computed and paid. Employers must also provide a copy of the signed contract to each employee, and must also obtain a signed receipt from each employee acknowledging receipt of a copy of the contract. To the extent that a contract governing commissions expires without being replaced but the employee continues to work, those terms will presumptively continue to apply until the parties sign a new agreement or until the employment is terminated.
Consistent with existing law, the new statute defines commission wages to include compensation for the sale of an employer's property or services based proportionately upon the amount or value of the property or services. However, the statute excludes, without defining, "short-term productivity bonuses" such as those paid to retail clerks or other bonus or profit-sharing plans, unless the employee has offered to pay compensation as a fixed percentage of sales or profits. Essentially, this means that wages based upon a percentage of the value of goods and services sold are covered, while bonuses and "spiffs" providing set payments based upon the immediate sale of an item or meeting a particular sales goal are not.
Commission plans already present many challenges to California employers. The new requirement of written commission agreements with each employee increases those challenges. It is important to prepare them to ensure that they do not inadvertently remove employer flexibility or impact other agreements and obligations. All employers should review their California commission and bonus plans to ensure legal compliance, and prepare standardized employment commission sales agreements for use in California that are drafted as narrowly as possible.