|
|
|
|
|
        |
|
|
 |
JUDICIAL UPDATES Commissions Not Considered "Wages" for Purpose of Charge Backs Verio, Inc. is an Internet service provider that sells internet access and web hosting services. It employs sales associates, and, for the time period relevant to the case, utilized several different sales compensation plans. Under these plans, a sales associate would typically receive 50% of the eligible commission on the last pay period of the next month after booking the sale. The balance of the commission was due upon installation of the equipment and hardware needed for Internet access. The plans contained “charge back” provisions, which generally gave Verio the right to seek reimbursement from an employee for any commission paid for an account that was canceled at a particular time. For example, when an account was canceled for any reason before Verio received three full months of monthly recurring revenue payments from the customer, Verio would deduct the applicable commissions from the sales associate’s future commissions payments. The sales associates signed written agreements that memorialized these and other terms. A group of former sales associates filed a lawsuit against Verio to claim primarily that the charge backs were unlawful under Labor Code section 221. Labor Code section 221 makes it illegal for an employer to collect or receive from an employee any part of wages previously paid by the employer to the employee. The Court of Appeal affirmed the trial court’s judgment in favor of the employer. The employees argued that the commission that they received were “wages” within the meaning of the statute. However, California law provides otherwise. The right of an employee to a commission depends upon the contract between the employee and employer. That is, California law allows the parties to agree on when, or whether, a sales person has earned a commission. It is commonplace for a commissions plan to require a sales representative to have ongoing responsibilities for servicing the account after the sale is made, as a condition precedent to receiving part of the commission based on that sale. Conditioning payment of commissions on the receipt of payment from customers does not deprive an employee of a commission “already earned” because it relates in part to services that are to be performed “in the future.” Accordingly, under California law, a commission contingent upon future performance is essentially an “advance” that by definition is not a “wage” because all conditions for performance have not been satisfied. Because the commissions at issue do not constitute “wages,” Verio did not violate Labor Code section 221. (Koehl v. Verio, Inc., Court of Appeal, First Appellate District, Case No. A108972; September 13, 2006).
NEXT: Employees Allowed to Maintain Privacy Claims Against Employer
|
|
|
|
|
 |
