A recent California case, DeLeon v. Verizon Wireless, involved an attack on the company's commission program for alleged violation of a labor code section that prohibits the secret underpayment of wages. Basically, the complaint was that the Verizon employees who were paid both a wage and a commission should not have been charged back against those commissions for customers who did not fulfill their agreements.
Verizon prevailed for these reasons:
- The commission was clearly defined as such, and the employees already received a wage that satisfied minimum wage standards.
- Employees knew that the commissions were not final until the customer completed their contract period, and that anything paid was considered an advance on commissions.
- Employees underwent training which included the chargeback feature.
- The court reminded employees that "the essence of an advance is that at the time of payment the employer cannot determine whether the commission will eventually be earned because a condition to the employee's right to the commission has yet to occur or its occurrence as yet is otherwise unascertainable." In this case, an advance was not a wage because all conditions for performance have not been satisfied.
- The court reminded employers that a chargeback based on "unidentified returns" from the wages of all sale associates violates the law. There are also cases in which the employee cannot be charged with business losses i.e. work comp claims, theft, etc.
Settling commission claims can be costly -- so get the agreement right!