Every commission lawsuit is about the same sentence: the one defining when a commission is "earned". Earned before termination means owed; not yet earned means not. Companies that leave the definition vague write that lawsuit into their own comp plan.
This template pins down the whole structure: the rate and its base, the earning trigger, the payment schedule, draws, clawbacks, and post-termination commissions, with language that adapts to employee or independent contractor status.
"Earned": the most expensive word in the document
Courts in most states enforce whatever earning definition the parties wrote, and fill the gap against the employer when they wrote none. The template offers the three standard triggers. Earned on signing favors the rep and exposes the company to commissions on deals that never pay. Earned on collection favors the company and defers the rep's income. Earned on invoicing sits between. The choice matters most at termination: for employees, commissions earned by the last day are wages, protected by state wage statutes with penalties for nonpayment, while post-termination triggers generally extinguish the claim, except for the completed-sale carve-out the template includes to keep the result fair and enforceable.
States that require commission terms in writing
California requires commission-paid employment terms to be in a signed writing with a copy to the employee (Labor Code Section 2751). New York requires written terms for commissioned salespersons, and many states impose statutory penalties, sometimes double or treble damages, for unpaid commissions owed to independent sales representatives after termination. A signed agreement with a clear earning definition is simultaneously the compliance document and the company's best defense.
Deducting draw balances from final pay is regulated
With a recoverable draw, an unrecovered balance at termination cannot simply be taken out of a final paycheck: many states prohibit or strictly condition deductions from wages. The template's draw clause defers to those limits for employees rather than promising an offset the law may not allow.
Draws, clawbacks, and clean design
A recoverable draw is an advance the rep repays out of future commissions; a non-recoverable draw is a guaranteed floor, effectively salary during ramp-up. New reps typically get one or the other for their first months. Clawbacks keep commissions aligned with real revenue: if the sale refunds or the receivable dies, the commission reverses on the next statement, itemized. Whatever the design, keep the stack consistent: the employment contract or independent contractor agreement should reference this commission agreement instead of restating pay terms, and one-time introductions belong in a referral agreement rather than a sales commission plan.
Frequently asked questions
Are commissions owed after an employee quits or is fired?
Commissions earned before the last day are owed, and for employees they are wages with statutory protection. Whether a pending deal was "earned" depends entirely on the agreement's trigger, which is why this template makes the trigger explicit and adds a carve-out for sales completed before departure.
Does a commission agreement need to be in writing?
In California and New York, yes, by statute for commissioned employees. Everywhere else, a written agreement is what prevents the dispute: courts construe missing or ambiguous commission terms against the party who drafted the plan, usually the company.
What is the difference between a recoverable and non-recoverable draw?
A recoverable draw is a loan against future commissions: earned commissions repay it before anything else is paid out. A non-recoverable draw is a guaranteed minimum: the rep keeps it even if commissions fall short. Recoverable draws carry legal friction at termination because wage deduction laws limit recovery.
Can the company claw back a commission if the customer refunds?
Yes, if the agreement says so before the commission is earned. The template's clawback clause reverses commissions on cancelled, refunded, or written-off sales via offset against future payments, itemized on the statement. Without such a clause, recovering a paid commission is difficult, especially from an employee.
Can the commission plan be changed later?
Prospectively, yes: the template allows amendment by a signed or electronically acknowledged writing. Retroactive changes to commissions already earned are generally unenforceable and, for employees, can violate wage law. Announce plan changes before the period they apply to.
Does this work for independent sales reps as well as employees?
Yes. The template adapts its language to the status: employee commissions are treated as wages with wage law protections, while contractor commissions are contract payments with W-9/1099 mechanics. Note that many states give terminated independent sales reps statutory penalty claims for unpaid commissions, so the earning definition matters for both.