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socrateaser, Lawyer
Category: California Employment Law
Satisfied Customers: 39043
Experience:  Retired (mostly)
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I am contemplating taking a job that pays a draw vs. commission.

Customer Question

I am contemplating taking a job that pays a draw vs. commission. My question is this: If I leave the company after a year and have not generated enough commissions compared to the draw that I was paid am I liable? Can the company sue to recover the money advanced to me? Let's assume there is no employment agreement that covers this issue.
Submitted: 5 years ago.
Category: California Employment Law
Expert:  Joseph replied 5 years ago.
Hello and welcome to JustAnswer.

Yes, unfortunately, if you sign a promissory note that you have to pay back any of the unearned draw that you receive, you would be liable if you leave the company and haven't genereated enough commissions comared to the draw.

However, if there is no agreement in place, then you wouldn't be liable for the draw even you haven't generated enough commissions compared to the draw.
Customer: replied 5 years ago.

A follow up question.

In the scenario where no agreement exists, does it matter if I quit or I am terminated?

Expert:  Joseph replied 5 years ago.
No, it wouldn't matter whether you quit or are terminated.
Customer: replied 5 years ago.

Another follow up question.


What if there is an employment contract (not a promissory note). And the contract states that I am obligated to repay the draw with future commissions that I earn. Can I be held liable for unearned draw if I no longer work for the company and therefore not able to generate future commissions? And does it matter if I am terminated or resign in this situation?

Customer: replied 5 years ago.
Relist: No answer to my follow up question
Expert:  socrateaser replied 5 years ago.

Different lawyer here. Please permit me to assist.

It is well established under California law that advances against commissions are not yet "earned," until the commission is earned. Therefore the advance money is still the property of the employer, not the employee, and can be recovered by a legal action after the employee's termination from employment. However, unless the employee is otherwise exempt from the minimum wage laws, the employee is entitled to minimum wage for his/her services (and overtime), which cannot be recovered from the advance.

Re your question about contract language making you only liable for repayment from your earned commissions, that language implies a penalty to the employer, since the difference between commissions and advance were not earned and you are effectively getting the money in exchange for nothing.

You could possibly include language stating something like: "In the event that any unearned advance balance exists as of the date of termination, said balance shall be considered a bonus for past services rendered to the employer."

Hope this helps.

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