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Your Legal Corner - Client Alert Blog

Employers May Be Able To Claw Back Advances On Commissions

Written By: Melissa C. Marsh, Esq., California Attorney, October 2012 Add to Favorites
This year the California Second District Court of Appeal have heard at least two cases involving a California employer's attempt to "claw back" a paid, or prepaid commission, and in each case came to opposite conclusions based on the employer's written commission plans and agreements.

On May 8, 2012, in Sciborski v. Pacific Bell Directory, 205 Cal.App.4th 1152 (2012), a California Court of Appeal emphasized the importance of clear language in commission plans and agreements. In Sciborski, the employer Pacific Bell Directory "clawed back" a commission payment given to the plaintiff Sciborski. Pacific Bell argued that it had the right to do so as the employee was only given the commission due to a clerical error that improperly assigned her to an account for which she was not eligible. Sciborski argued that Pacific Bell's admitted clerical error was an improper basis to claw back the commission, and the Court agreed.

According to the Court, "Absent an express provision to this effect, Pacific Bell was not entitled to unilaterally declare that the commission was not earned and use self-help measures to deduct funds from Sciborski's wages that had already been paid to her."

The Court's holding in Sciborski v. Pacific Bell Directory, underscores the importance of a clearly written commission agreement and pay plan as does the following case.

A few months later on July 7, 2012 in Deleon v. Verizon Wireless, LLC, the California Second District Court of Appeal this time upheld a summary judgment in favor of Verizon Wireless. In Deleon, Verizon's retail sales representatives received an hourly wage plus monthly commissions as described in its detailed compensation plans. Plaintiff Saul Deleon brought a claim on behalf of himself and all of the other sales representatives similarly situated claiming that Verizon did not have the legal right to charge back allegedly unearned but paid commissions against his future commissions. The Court disagreed and upheld the trial court's summary judgment in favor of the defendant.

The Court reasoned that Verizon could recover advances on commissions from its employees based on its clearly written compensation plan. According to the court, Verizon's compensation plan clearly explained that Verizon paid out (advanced) unearned commissions to its sales representatives, that such advances were not earned commissions until the expiration of a chargeback period (sometimes up to one year during which period of time the customer could cancel), and that if a client cancelled during the chargeback period, Verizon could recover that advance on commission from future advances on commissions. Based on the compensation plan details, the Court held that the advanced commissions were not earned, in turn were not "wages" until of all conditions for payment were met, and therefore Verizon was legally permitted to perform the chargeback against future advances.

These two cases underscore the need for California employers to have clear well written compensation agreements and plans, especially where commissions are involved.

Tags: commission
Posted In: Employment Law News 

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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.