Mistakes in Your Commission Agreement? Who Pays?

Imagine you've diligently worked to meet or exceed your sales targets and are counting on the commission you've earned according to your signed agreement. Then suddenly, your employer says there's a "mistake" in the agreement, or that you’re misinterpreting it, and you're going to be paid less. Can they really do that?

Like most questions, the answer is that it depends. But keep in mind that California law strongly favors employees in situations like these. Here's what you need to know:

Your Commission Agreement Must Be in Writing

California requires employers to have written commission agreements clearly explaining how commissions will be calculated and paid. You must receive and sign a copy acknowledging this agreement. (Cal. Labor Code § 2751.)

Employers Cannot Refuse to Pay Earned Commissions

Under California Labor Code § 200, commissions are considered wages once they are earned. Under various other Labor Code sections, employers are prohibited from failing to pay commissions when they are due and may not take back wages that are earned. Simply put, your employer can't retroactively reduce or take back your commission after you've performed your part of the deal.

Mistakes Don't Automatically Excuse Payment Obligations

Absent unconscionability, unless the mistake in your commission agreement is obvious or you have reason to know of the error, California law provides at least two clear legal theories supporting your entitlement to receive the agreed-upon commission:

1. Binding Contract: If your employer communicated a commission structure and you performed according to that structure, you've created a binding contract. (DiGiacinto v. Ameriko-Omserv Corp. (1997) 59 Cal.App.4th 629; Mar v. Perkins (2024) 102 Cal.App.5th 201.)
2. Promissory Estoppel: If your employer promised you a certain commission structure, and you reasonably and foreseeably relied on that commission structure, promissory estoppel will likely require that your employer honors its promise. (US Ecology, Inc. v. State of California (2005) 129 Cal.App.4th 887.)

Ambiguities Favor the Employee

Employers may try and claim that you are misinterpreting your agreement, or that you don’t understand certain terms or phrases. While terms or phrases may have common or industry specific meanings, sometimes your employer’s poor choice of words causes there to be what courts refer to as an “ambiguity”— a term, phrase, or provision that is unclear, vague, or open to multiple reasonable interpretations.  In those cases, California has long held that those ambiguities will be interpreted against the drafter of the agreement, which in most cases will be the employer. (Cal. Civ. Code § 1654; Sandquist v. Lebo Automotive, Inc. (2016) 1 Cal.5th 233.)

Attorney's Fees and Costs

If you're forced to sue for unpaid commissions and win, California law requires your employer to pay your reasonable attorney’s fees and costs. (Cal. Lab. Code § 218.5.)

Bottom Line

If you've performed your job based on a commission agreement, California law protects your right to be paid as promised—even if your employer claims there was a mistake. Employers cannot retroactively change terms after you've performed your work.

If you're facing this issue, NorCal Advocates is here to help.  We are dedicated to fighting for employees to ensure they recover the compensation they’re owed.