244 | 2024 Cal-Peculiarities ©2024 Seyfarth Shaw LLP www.seyfarth.com Neiman Marcus concluded that the policy was unlawful under California law because the policy effectively required sales associates to “repay a portion of commissions” on “completed sales” to compensate the employer for commissions paid on sales that other employees did not complete—amounts that would otherwise be a business loss that “the conscientious sales associate has done nothing to cause.”400 Neiman Marcus contrasted this unlawful practice with a lawful practice that “identified returns, [where] the sale is reversed and the individual sales associate is required to return the commission because his or her sale was rescinded.”401 While Neiman Marcus did not decide whether an “identified returns” policy would necessarily be lawful, the DLSE has interpreted Neiman Marcus as allowing a chargeback of commissions paid to an employee for identified returns.402 7.15.4 Written contracts required for commission agreements Employers contracting for services within California and contemplating payment in the form of commissions must put the commission agreement in writing and describe how commissions are computed and paid.403 Further, employers must give a signed copy of that agreement to each commissioned employee, and obtain a signed receipt from the employee.404 The statute defines “commission” for these purposes as “compensation paid to any person for services rendered in the sale of such employer’s property or services and based proportionately upon the amount or value thereof.”405 But the following forms of pay do not qualify as “commissions”: (1) short-term productivity bonuses such as those paid to retail clerks, (2) temporary, variable incentive payments that increase, but do not decrease, payment under the written contract, and (3) bonus and profit-sharing plans, unless the employer offered to pay a fixed percentage of sales or profits as pay for work performed. 7.16 Bonuses A bonus is money paid in addition to ordinary salary or wages. The Labor Code does not expressly address bonuses. Courts treat a bonus as a form of wages. Entitlement to a bonus is a matter of contract law, as modified by California statutory law. Courts consider an offer of a bonus as a binding unilateral contract that the employee accepts by beginning performance under the bonus plan. Unless a bonus plan expressly provides otherwise, California bonuses are often treated as earned pro rata and payable, as wages, upon termination. Further, if the reason an employee has not earned a bonus is that the employer has dismissed the employee without cause, then a California court likely would hold that the employee is entitled to a pro rata share of the bonus, on the theory that the employer is at fault for preventing the performance needed to earn the bonus.406 But if a written bonus plan clearly requires the employee to remain employed until a certain date, then an employer can deny the entire bonus if an employee, before that date, voluntarily resigns or is dismissed for good cause.407 7.16.1 Bonuses affected by the employer’s workers’ compensation costs Some employers base bonuses in part on how successfully the company has avoided workers’ compensation costs. Labor Code section 3751, however, forbids an employer to deduct from employee earnings, either directly or indirectly, “to cover the whole or any part of the cost” of workers’ compensation.408 A 2003 Court of Appeal decision (Ralphs I) interpreted section 3751 to mean that workers’ compensation costs must be ignored in the
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