Charge Backs for Commission Employees may not be Considered an Unlawful Deduction
The Holidays are over and now comes the time all sales people dread, the return season!
Returns are inevitable, but how much can they take back from the commissions you already got paid?
California Court of appeals has maintained that employers do have the right to take back previously issued commission wages. This practice is commonly referred to as “charge backs”. In DeLeon v Verizon Wireless, the courts view charge back as the return of an advance on wages. In others words, the original payment of commission was considered an advance on possible earned wages based on the sales the employee initiated. But if for some reason the sale was not completed, was cancelled or returned, the advanced commission could be returned to the company as a charge back or deduction of current commission wages.
DeLeon was a little more complicated than this. Verizon held a period of 1 year from the original sale as the time in which they could issue a charge back. So Verizon was watching customer accounts a year after to see if the client returned the product or canceled the service. If the sale was revoked within that year, the sales person was issued a charge back and the money was returned to the company.
When Considering DeLeon in conjunction with last month’s decision in Sciborski v Pacific Bell, you may notice the courts will distinguish a legitimate contractual condition on earning a commission from an unlawful “deduction” or “withholding” of wages. Under the principles discussed in these two opinions it appears that courts will generally allow employers to deny a commission payment if an employee fails to fulfill a term that:
- Is clearly expressed , preferably in writing, before the employee performs the work; and
- Is related to the sale itself.
By contrast, courts will tend to find a violation of California law where an employer denies a commission payment for a reason that:
• Is unrelated to the successful completion of the particular sale itself;
• Is outside the employee’s ability to control or influence;
• Is unpredictable or arbitrary; or
• Is shifting a cost of doing business which the employer should pay to the employee.
It may be a long time before the case law is crystal clear in this area but the main outline of the rule is starting to come into focus.
These cases, like any employment law issue, can get very complicated. The right advocate can make ALL THE DIFFERENCE!
Call United Employees Law Group now for a free review of your unique case.
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