TIMELY PAYMENT OF EARNED COMMISSIONS

In the realm of commissions on sales, when is payday? Does the law have anything to say about how quickly an employer must pay a salesperson the commission he or she has earned? It does.

The General Rule: Earned Commissions Must Be Paid Semi-Monthly

In July of 2014 the California State Supreme Court confirmed that in fact Labor Code § 204 (which provides the general rule on timely payment of earned wages) commands, “all earned wages, including commissions, must be paid no less frequently than semimonthly.” Peabody v. Time Warner Cable, Inc., (2014) 59 Cal. 4th 662, 668. [emphasis original]. “Semi-monthly” means every two (2) weeks after the commission has been “earned.”

Some exceptions apply. Where a more specific code section exists, it trumps a more general code section. Rose v. State, (1942) 19 Cal. 2d 713, 724. The Labor Code provides a special rule for “executive, administrative and professional” employees. For such employees, California law and Federal law (the Fair Labor Standards Act primarily) may grant slightly longer periods in which the employer can make payment of earned wages (Labor Code § 204c). A special rule of timely payment of earned commission wages applies just to salespersons at vehicle dealerships (Lab. Code § 204.1.).

Additionally, the Labor Code sections following 204 (§§ 204a – 220.2) address a number of specific topics, including payment of regular wages (wages based on time worked) for enumerated industries and to public employees; timely payment of wages when an employee is terminated or resigns; notice; place of payment; releases of wage claims; time off in lieu of cash compensation, etc.

But, What About My Contract? 

Whether you are an employer or a salesperson employee, your reaction to this news that earned commission must be paid semi-monthly will likely be, “Wait a minute, our sales commission contract says commissions will be paid quarterly. So, what about the contract?”

While the Peabody decision is so new that cases applying it have yet to wind their way through the court system, Labor Code § 219 (a) makes timely payment of earned wages a protection that an employee cannot waive by contract:

(a) Nothing in this article shall in any way limit or prohibit the payment of wages at more frequent intervals, or in greater amounts, or in full when or before due, but no provision of this article can in any way be contravened or set aside by a private agreement, whether written, oral, or implied. Consequently, the likely outcome is that a contract term that says an employer may pay an earned at a date later than semi-monthly is void, unless an exception applies.