The best defense against a lawsuit is compliance with the law. Unfortunately, employers don't always understand the law or choose to ignore it. The result is often a lawsuit. This week I have read about a lawsuits filed where attention to detail could have made a difference.
The case is based on Labor Code section 2751. It requires any employment contract that "involves commissions" to be in writing, setting for the method by which commissions are computed, and signed by the parties. Unpaid commission cases can be very complicated and time consuming. If the commission structure is not written down, it is difficult for an employer to proved the methodology of the commission. Management, payroll clerks and the commission-earner can all have very different ideas on the earning and calculation of the commission. Ambiguity creates claims which are expensive to defend and easy to lose.
Section 2751 does not set forth a penalty for failure to comply. However, a plaintiff will likely cite section 2751 as the standard required of an employer using a commission-based compensation structure. Moreover, section 2751 is not limited to salespersons or to workers paid entirely on a commission. If any part of the employee's compensation "involves commission" section 2751 applies.
Get it in writing!