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.

A recent Ninth Circuit decision, Lui v. DeJoy, sheds important light on the oft-confusing application of the McDonnell Douglas burden-shifting framework in Title VII discrimination cases. In a significant clarification, the court reiterated that an employee can satisfy the fourth element of the prima facie case under McDonnell Douglas simply by showing that they were replaced by someone outside their protected class—dispelling the notion that they must also demonstrate that the replacement was "similarly situated."

It is important to note that while the Ninth Circuit refers to this as the "fourth element of McDonnell Douglas," this terminology can be misleading. The element in question is actually the fourth element of the prima facie case, which is itself only the first of three steps in the McDonnell Douglas burden-shifting analysis. This distinction is crucial to understanding the framework correctly.

Background of the Case

Dawn Lui, a Chinese-American woman and longtime USPS employee, was removed from her position as Postmaster in Shelton, Washington, and demoted to a lower-paid Postmaster role in Roy, Washington. She was replaced by a white male with less experience. Lui alleged that she was subjected to discrimination based on race, sex, and national origin and filed suit under Title VII. The district court granted summary judgment for USPS, concluding that Lui failed to establish a prima facie case under McDonnell Douglas because she had not shown that a "similarly situated" individual outside her protected class was treated more favorably.
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The Ninth Circuit reversed the district court’s ruling on this issue, criticizing the lower court’s reliance on an improperly truncated version of the McDonnell Douglas test.

Clarifying the Fourth Element of the Prima Facie Case in McDonnell Douglas

The McDonnell Douglas framework, established by the U.S. Supreme Court, is a three-part test used to determine whether an employer engaged in unlawful discrimination:

1. The plaintiff must first establish a prima facie case of discrimination.
2. The burden then shifts to the employer to articulate a legitimate, nondiscriminatory reason for the adverse employment action.
3. If the employer does so, the burden shifts back to the plaintiff to demonstrate that the employer’s stated reason is a pretext for discrimination.

​The prima facie case itself consists of four elements:

1. The employee belongs to a protected class.
2. The employee was qualified for the position.
3. The employee suffered an adverse employment action.
4. The position remained open, was filled by someone outside the protected class, or "similarly situated" individuals outside the protected class were treated more favorably.

​The district court, in granting summary judgment, relied on cases that required a plaintiff to show "similarly situated" employees were treated more favorably, ignoring precedent that also allows a plaintiff to meet the fourth element simply by demonstrating that their position was filled by someone outside their protected class.

The Ninth Circuit’s Key Holdings

The Ninth Circuit emphasized that the Supreme Court and previous Ninth Circuit cases have long recognized that an employee meets the fourth element of the prima facie case by showing either that they were replaced by someone outside their protected class or that similarly situated individuals outside their protected class were treated more favorably.

The court clarified that the "similarly situated" requirement is an alternative means of proving discrimination, not an additional hurdle for employees who can already show that they were replaced by someone outside their protected class. This distinction is important, as the "similarly situated" analysis often presents unnecessary barriers for plaintiffs due to subjective employer practices and differing job responsibilities among employees.

Implications for Employees and Employers

The Ninth Circuit’s decision provides much-needed clarity and ensures that employees are not unfairly burdened by an overly restrictive interpretation of McDonnell Douglas. This ruling confirms:
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• Employees who are replaced by someone outside their protected class have a viable claim under Title VII without needing to prove differential treatment of "similarly situated" colleagues.
• The "similarly situated" analysis remains an alternative means of satisfying the fourth element, but it is not a universal requirement.
• For employment attorneys handling discrimination cases, this ruling strengthens arguments that a replacement by someone outside the protected class alone can establish a prima facie case, making it more difficult for employers to win summary judgment.

If you believe you have been subjected to discrimination in the workplace, this case highlights the importance of consulting with an experienced employment attorney to assess your claims and protect your rights under Title VII.