Legal Question in Employment Law in California

After 10 years of employment, my California employer changed my sales commission plan to an incentive plan. I was previously paid a percentage of the contract value for the first year of business. The new plan is now based on maintaining a total “book value” of business (existing and new). I no longer receive a direct commission. My potential incentive is based on 70% salary and 30% incentive with quarterly book value targets. I receive no compensation if 95% of the threshold book value is not met. If I exceed threshold, then my company will withhold a portion of my incentive in case I fall short in subsequent quarters. Falling short at the end of the year may result in the company clawing back compensation in the following year.

A) can my employer change the type of compensation from commission to incentive if I’m still salesperson?

B) does the method in which my employer calculates and pays “incentive” meet CA labor code?

Thank you


Asked on 3/26/21, 9:35 pm

1 Answer from Attorneys

A) Yes. An employer is not limited to giving raises when they change compensation. They can increase, decrease or modify the calculation for compensation at any time, so long as it is prospective. They can only change it for work done after you are notified of the change.

B) This is a lot more complicated, and depends on details you did not provide. The rules vary depending on whether you are an "inside" or "outside" salesperson, what industry you work in, how much your salary is compared to minimum wage, whether you get your salary regardless of meeting targets or if you get no compensation at all if you fail to reach the 95%, and the specifics of the withholding and claw back provisions. All those details and more go into determining whether or not they are offering a legal or illegal commission plan, or possibly even technically a bonus system in lieu of commissions. There's just no way to tell without burrowing into the details, which exceeds the scope of an internet Q&A.

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Answered on 3/29/21, 8:33 am


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