I am solely commission recently I noticed my check short a few dollars when I asked my employer as to why? He said that it was from a discounted service that was given to the customer from what I can remember this is illegal I had an issue with a previous employer and they ended up having a class act lawsuit as a result of taking our commission for a service we did but didn’t get paid due to company’s coupon or sale is this still true or is there something I’m not aware of ? New law/loophole
Hi Sol05,
Thank you for your question. An accurate answer to your question will largely depend on the terms of your commission agreement and the nature of the discount that was offered by your employer. It is possible that your employer has violated the law, but it would be best to have an attorney review your specific situation to be sure.
To better assist you, I’ll provide a quick overview of California’s law on discounts and merchandise returns, as it relates to commissioned employees.
Employers Normally Bear Their Own Losses
California law prohibits employers from making deductions from the wages of employees for most expenses that are incurred during the regular course of business. (Labor Code, § 221.) In most situations, employers may not make deductions from wages for business losses unless the employer can establish one of two things:
- The business loss was caused by a dishonest or willful act, or
- The business loss was caused by the culpable negligence of the employee. (Cal. Code Regs., tit. 8, § 11070, subd. 8.)
This rule favors employees because it means that employers usually cannot charge employees for things like cash shortages, breakage, loss of equipment, and other business losses that resulted from the employee’s simple negligence. (Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109, 1118.)
In the context of commissions, however, this rule is much less clear. First, a commission agreement may require an employee’s commission to be reduced by costs that are directly related to the sale. (Davis v. Farmers Ins. Exchange (2016) 245 Cal.App.4th 1302, 1332 1333.)
Example
An employer can make deductions for things like shipping, the cost of the product being sold, or the cost of free products offered by the salesperson to induce the sale—but only if those costs are directly tied to the same sale.
An employer cannot, however, make deductions for things that are only remotely related to the sale. Nor can an employer use deductions as a way of shifting their cost of doing business to the employee. (Davis v. Farmers Ins. Exchange (2016) 245 Cal.App.4th 1302, 1332 1333.)
So, for example, an employer may not deduct the cost of the business’s electricity or the business’s general overhead from the employee’s commission.
Example
At least one court in California has suggested that an employee’s commission may not be reduced by the cost of a credit card fee. Nor may employers reduce the employee’s share of the profit on phone orders. (Aguilar v. Zep Inc. (N.D.Cal. Aug. 27, 2014, No. 13-cv-00563-WHO) 2014 U.S.Dist.LEXIS 120315, at *50.)
Those penalties serve only to shift the employer’s cost of doing business to the employee.
Finally, if the employer wishes to make deductions from an employee’s commissions, those deductions must be clearly stated in writing. (See Marr v. Bank of Am., NA (9th Cir. 2013) 506 F.App’x 661, 661.)
Employers Can Sometimes Deduct Merchandise Returns and Discounts From a Commission
In general, it is legal for a commission agreement to make the payment of a commission contingent on events that occur before or after a sale. This means that a commission agreement can require an employee to payback a commission for merchandise that was returned or can reduce the amount of an earned commission based on a discount that was given.
Likewise, the agreement can require that any wages advanced to the employee be deducted at a later date if the sale is reversed for some reason (like, say, a bounced check). (Davis v. Farmers Ins. Exchange (2016) 245 Cal.App.4th 1302, 1332.)
A commission agreement may not, however, make deductions from an employee’s commissions for merchandise returns or discounts that are not directly attributable to the employee. So, unless the employer can specifically identify a sale as having come from a specific employee, the employer may not make deductions for a return from that sale. (See Hudgins v. Neiman Marcus Group, Inc. (1995) 34 Cal.App.4th 1109.)
Minimum Wage Considerations
Importantly, most employees who are paid on a commission basis are entitled to be paid minimum wage for hours worked. Thus, an employer may not require an employee to repay advances or earned commissions if doing so would cause the employee’s wages to fall below the minimum wage (unless the employee is exempt from minimum wage requirements). (See Labor Code § 1182.12, subd. (b).)
Final Thoughts
I realize the helpfulness of this answer is limited, since it doesn’t focus on your specific situation. But hopefully it provided some value. My best advice to you would be to contact an employment attorney to have them review both:
- The terms of your commission agreement, and
- The nature of the discount that was deducted.
That way, you can know with confidence whether your employer violated the law. Please remember that this information does not constitute legal advice and should not be relied on. Nor does it create an attorney-client relationship.
In any event, I wish you the best of luck in your situation!