Your Commissions After Termination: What the Employer Owes and When
You closed the deal before you were fired. The commission has not been paid. The employer says you forfeited it because you are no longer employed. Under California law, a commission that was earned before the termination is a wage — and wages earned cannot be forfeited.
Commission disputes after termination are among the most common — and most contested — wage claims in California. The employee closed deals, brought in clients, or completed the work that triggers the commission. The employer terminated the employee before the commission was paid. And the employer now argues that the commission was forfeited — because the employee was not employed on the payment date, because the commission “hadn’t vested,” or because the employment agreement contains a provision conditioning payment on continued employment.
California law does not let employers keep wages that employees have earned. And commissions, once earned, are wages.
When a commission is “earned”
Labor Code section 204.1 defines a commission as compensation paid for services rendered in the sale of the employer’s products or services, based proportionately on the amount or value of the sale. A commission is earned when the employee has completed the act that triggers the commission — typically, closing the sale, securing the contract, or achieving the performance metric that the commission plan identifies as the triggering event.
The key question in every post-termination commission dispute is: when was the commission earned? If the triggering event occurred before the termination — if the employee closed the deal, signed the client, or hit the target before they were fired — the commission was earned during the employment, and it is a wage owed to the employee.
An employer that conditions payment on continued employment at the time of payment — “commissions are paid quarterly; you must be employed on the payment date to receive them” — has conditioned the payment of earned wages on an event (continued employment) that does not affect whether the wages were earned. The condition may be unenforceable under Labor Code section 201, which requires payment of all earned wages upon discharge.
What the law requires
Earned commissions must be paid upon termination. Labor Code section 201 requires that all wages earned by the time of discharge be paid immediately. If the commission was earned before the termination — if the triggering event occurred before the last day of employment — the commission is a wage due at the time of discharge.
Commissions that become calculable after termination must be paid when due. Some commission plans provide that commissions are calculated and paid on a specified schedule — monthly, quarterly, or upon completion of a project. If the triggering event occurred during the employment but the calculation or payment date falls after the termination, the employer must pay the commission on the next regular payment date, or as the commission becomes calculable.
Commissions cannot be forfeited by termination. A provision in the commission plan or employment agreement that forfeits earned commissions upon termination may be unenforceable. California courts have held that an employer cannot use a forfeiture provision to avoid paying wages that the employee earned through their labor.
Common disputes
“You weren’t employed on the payment date.” The employee closed the sale in February. Commissions are paid quarterly, in April. The employee was terminated in March. The employer refuses to pay the February commission because the employee was not employed in April. The commission was earned in February. The payment date is a processing date, not an earning date. The commission is owed.
“The deal hadn’t closed.” The employee brought in the client, negotiated the terms, and secured the agreement — but the contract was not formally executed until after the termination. Whether the commission was earned depends on what the commission plan defines as the triggering event. If the plan pays on “closed deals” and the deal was not formally closed until after the termination, the employer may have an argument. If the plan pays on “sales” or “contracts secured” and the employee completed the substantive work, the commission may have been earned before the formal closing.
“You were terminated for cause.” The employer argues that a for-cause termination forfeits all commissions. Unless the commission plan explicitly provides for forfeiture upon for-cause termination — and even then, the enforceability of the forfeiture provision is subject to challenge — the termination does not affect the commission obligation. Wages earned cannot be forfeited as punishment.
“You owe us a clawback.” The employer claims the right to claw back commissions already paid — because the client later cancelled, because the deal fell through, or because the employer’s policy provides for clawbacks. Clawback provisions are subject to Labor Code section 221, which prohibits employers from collecting wages previously paid. A clawback that deducts earned commissions from future paychecks or from the final paycheck may violate this provision.
What to do
An employee who is owed post-termination commissions should:
Review the commission plan. Identify what constitutes the triggering event — what the employee must do to “earn” the commission. Compare the triggering event to the timeline of the termination. If the triggering event occurred before the termination, the commission was earned.
Request payment in writing. Cite the specific deals, the commission amounts, and the dates the commissions were earned. Cite Labor Code section 201 and the requirement that earned wages be paid upon discharge.
File a wage claim. If the employer refuses to pay, file a claim with the Labor Commissioner. Commission disputes are within the DLSE’s jurisdiction, and the process is free.
Consult with an attorney. Commission disputes often involve the interpretation of commission plans — complex documents with provisions that may or may not be enforceable. An attorney can evaluate the plan, the triggering events, and the employer’s defenses.
If you earned a commission before you were terminated — you closed the deal, you secured the client, you hit the target — the commission is a wage, and the employer must pay it. A provision that forfeits earned commissions upon termination may be unenforceable. The employer cannot keep what you earned.
This article is general information about California law and is not legal advice. Every situation turns on its particular facts.