Ladera Ranch, CA asked in Employment Law for California

Q: Can an employer revoke a current commission plan & enforce a sales rep to accept the current paid salary as sales comp?

I am a prof services sales exec with a salary and a commission plan to pay on all originated revenue sold during the year. After two years, I exceeded sales expectations. Now my employer is wanting to renegotiate my comp plan by stating that the high salary they already give me should account for a high revenue threshold for me to achieve before they will start paying commission. Now instead of being able to achieve commission on the first dollar of revenue sold, they expect me to sell a certain revenue amount first before I’m paid any commission on subsequent revenue sold only if I hit the threshold, which unfairly shifts more risk to me since I won’t be paid the same amount. They say the salary already paid equates to a minimum of revenue to the firm, so they no longer want to pay on the commission plan we agreed to when I started with the firm 2 years ago. Is there precedent of other companies using salary as a sales comp basis like this? Is this comp practice legal in CA?

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2 Lawyer Answers
Alden Jay Knisbacher
Alden Jay Knisbacher
  • Oakland, CA
  • Licensed in California

A: The company can change the commission plan, as long as they don't change the commissions on sales already made.

The more complicated question is whether they are entitled to keep you on a salary basis -- and whether they will have to pay you overtime. That depends on a lot of facts not provided. Under CA law you will be exempt from overtime if

Earn at least one-and-a-half times the minimum wage,

Earn more than half your income in the form of commissions,⁠ and

Work in the mercantile industry (which includes retail jobs), or work in certain professional, technical, clerical, mechanical, and similar occupations.⁠

This test is per pay period

If you are paid a salary in one pay period and a combination of salary and commissions in the next pay period, you cannot be classified as exempt during the pay period in which no commissions are paid.

This means that you would be entitled to overtime pay just like non-salaried employees during the pay periods where you did not earn commissions.

There are different rules for "outside sales," employees as defined under California law.

Note that even if you are not entitled to overtime pay, you are still entitled to meal and rest breaks, unless you are an "outside sales" employee.

Maurice Mandel II
Maurice Mandel II
  • Newport Beach, CA
  • Licensed in California

A: I had a case like this some years back. There were 7 Salesmen with a complex commission and bonus structure driven by their sales volume. This was an annual commission plan. The plan contained a provision that it was subject to unilateral change at any time by the employer. The year closed without any changes to the plan. When the employer saw how much some of the salesmen were being paid, it developed a modification to the plan that would have deprived them of tens of thousands of dollars in earned commissions. We sued on the basis that the contract, which was for one year, had been completed, the salesmen had performed all actions required to them and therefore their rights to the commissions had vested as of the date the plan terminated at the end of the year. The company could not retroactively forfeit the salesmen's rights to commissions even though the plan said it could be modified at any time. The employer hired a law firm that was the biggest bully one could imagine. This is more than 20 years ago and this case is burned into my memory.

You have a similar situation. but it seems that they are not trying to retroactively forfeit your right to earnings, but trying to impose a prospective change to your commission plan, requiring a credit of your salary to boost the floor on which you earn commissions. There are contracts out there with these requirements, a salesman does not earn commission on the first dollar sold because he has a high salary. But at the same time if the salesman exceeds sales expectations they should be given a greater commission on the back end. BUT there is no law governing this, it is contract law and "subject to the negotiation between the parties." My response: Initiate discussions re: employment with their biggest competitor, take any non compete agreement to the competitor so you have full disclosure. (most non compete agreements are not valid in California, anyway). Take the details of your situation to a good employment attorney.

Remember wage orders and Overtime rules are generally designed to benefit those in an hour wage position, not highly paid salaried and commissioned salesmen, but it does not mean that they may not apply to you too!

BTW the current requirement is double minimum wage for a 40 hour week to be salaried exempt. And there is a new rule about it being calculated on a monthly basis.

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