Sacramento Employment Lawyer

Chargebacks against Employees' Commissions in California

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An employee whose wages are based in part on commissions may face a situation where he is being terminated or laid off, shortly after a transaction (or a number of transactions) that result in earning his commissions take place and before he is paid or where the transaction falls through after he earns his commissions but before he is paid. At that point, the employer may refuse to pay the employee commissions due and argue that the subject employee is not entitled to those commissions. 

Although, the law is not fully clear on the issue of when the employer has the right to withhold commissions, the are certain useful guidelines that the courts have prescribed in the decided cases. In one leading case on the issue of chargebacks against commissions - Harris v. Investor's Business Daily, Inc. 138 Cal.App.4th 28 (2006) - the Second District deal with the issue of withheld commissions. In that case, the employer argued that the company was entitled to withholding commissions because they constituted "advance" to the telemarketers whose job was to sell monthly newspaper subscriptions, because the subscribers had the right to terminate the subscription after signing up, and thus, the company believed, the loss of the business should have been carried on to the employees in charge of obtaining that business. 

The court has rejected the above argument. The court started its analysis by noting the fundamental presumption that the employer shall not take any wages back from the employer after they are earned. Cal. Labor Code section 221. Wages are defined broadly to include all amount for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard time, task, piece, commission basis, or other method of calculation. Cal. Labor Code section 200. The court further held that in order to chargebacks to be legal in that case, (a) the commissions must be specifically identified as "advance" in the company's stated policy or compensation agreement. In addition, (2) the employees must expressly agree to the chargeback policy in writing. 

California Employment Law: Non-Compete Agreements and Customer Lists

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The Edwards v. Anderson decision has recently further liberalized competition, holding that almost all non-compete agreements between an employee and the employer are invalid and unenforceable.

However, a number of significant exceptions to this rule remain in effect. One such exception is that it is illegal for a former employee of a company to engage in unfair competition, including using trade secrets or proprietary information of their former employer. This exception is often applied to the situations were the sales people who leave a company, take the company's customer lists, and start their own company, using the subjects lists of customers in order to solicit business from them. 

In 1985, California adopted a Uniform Trade Secret Act for misappropriation of trade secrets. It defines a trade secret as "information, including a formula, pattern, compilation, program, device, method, technique, or process that (1) derives independent economic value from not being generally known to the public..., and (2) is the subject of efforts that are reasonable under the circumstances to maintain its secrecy. The legislature meant to codify that a customer list procured by substantial time, effort, and expense is a protectable trade secret. Thus, one case held that a list of customers or subscribers "built up by ingenuity, time, labor and expense of the owner over a period of many years is property of the employer," and "knowledge of such a list, acquired by an employee by reason of his employment, may not be used by the employee as his own property or to his employer's prejudice." Greenly v. Cooper (1978) 77 Cal.app.3d 382, 392.  

On the other hand, if the information about potential clients is generally available to the public, and the compilation process of the subject list that the employer used is neither sophisticated not diffcult or particularly time consuming, then there will likely not be a violation. This may include making cold calls or consulting phone directories in a competitive industry, where many other business target the same customers the same way. (See American Paper & Packaging Products, Inc. v. Kirgan 183 Cal.App.3d 1318 (1986)). For more information about non-compete agreements and their validity in a specific situation, feel free to contact San Francisco & Sacramento Employment Lawyer.

When Your Employer Does not Have a Workers Compensation Insurance Coverage

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California Labor Code provides significant protection to employees who sustain an industrial injury and whose employer failed to secure a workers compensation insurance coverage. Under Labor Code section 3706 such an employer will be liable for employee's injuries in tort. That is, under the circumstances, the employer may be sued in negligence for injuries sustained by the employee.  While some injuries at work are relatively light, some injuries can be permanent and debilitating (assembly line type and alike machinery), exposing employer to significant exposure for the injured employee's damages. 

This is yet another reason why the employers who are subject to the provisions of the workers compensation laws are urged to have that kind of insurance coverage.