Here’s a comprehensive, practitioner-style explainer on the forfeiture of sales agents’ commissions under Philippine labor law—written for employers, HR teams, and counsel, and careful to note where outcomes turn on facts, contracts, or jurisprudence. It’s general information, not legal advice.

What is a “sales agent”—employee or contractor?

“Sales agent” is a business label, not a legal one. Under Philippine law, what controls is the relationship’s substance, not the job title. Use the four-fold test (selection, payment of wages, power of dismissal, and employer’s control over the means/methods of work).

If the company controls how the agent works (e.g., schedules, routes, scripts, required reports, mandatory quotas with discipline), the agent is likely an employee, and labor standards on wages apply (including restrictions on deductions/forfeiture).
If the agent is genuinely independent, paid purely by success and free to choose methods/hours (typical for insurance, real estate, distribution brokers), civil law principles and special statutes (e.g., insurance regulations) tend to govern; “wage” rules may not apply the same way.

Everything below assumes the sales agent is an employee. If your agents are independent contractors, treat the analysis as persuasive but not controlling.

Commissions as “wages”

For employees, commissions are generally treated as wages when they are a regular, integral part of compensation for sales made or accounts serviced. This matters because wages are protected by:

Constitutional policy: full protection to labor; security of tenure; humane conditions; living wage.
Labor Code wage protections, including:
- Prompt payment (on or before regular paydays).
- No unlawful deductions or kickbacks.
- Non-diminution of benefits (no unilateral reduction of long-enjoyed, consistent pay practices).
Civil Code rules on contracts and unjust enrichment.

Practical takeaway: if it’s a true, earned sales commission, you start from a strong presumption against forfeiture unless a lawful, clear, and reasonable contract says otherwise.

When does a commission “vest” or become earned?

This is the fulcrum of any forfeiture dispute. The answer is what the contract (and consistent practice) provides, read in light of fairness and wage policy. Common triggers:

Upon closing a sale (“procuring cause” rule) – The commission vests when the agent brings the buyer and seller to a binding sale—even if cash comes later. – Forfeiture is difficult once the sale is perfected, unless the contract expressly conditions the commission on later events (e.g., customer payment, no cancellation/return).
Upon collection of payment (“no collection, no commission”) – Lawful if clearly stipulated, communicated, and consistently applied. – Employers should prove non-payment or reversal (e.g., bounced checks, chargebacks).
Upon delivery or lapse of return period – Valid to protect against returns/cancellations, if stated in policy/plan and not used to punish workers for factors beyond their control (e.g., manufacturing defects).
Upon meeting documentary conditions – E.g., submission of signed contracts, CRM entries, proof of delivery. Lawful if reasonable and not mere pretexts to avoid paying.

If the contract is silent or ambiguous, Philippine tribunals tend to construe in favor of the worker: a commission earned by the procuring cause is not forfeitable merely because pay-out falls after separation or because of post-hoc employer policy changes.

Common forfeiture scenarios (and how they fare)

Below are recurring patterns, with how they’re typically analyzed for employee-agents:

Resigned before pay-out date
- Default: If the commission was already earned/vested under the plan (e.g., sale closed; conditions met), resignation does not forfeit it.
- Exception: A clear “must be employed at pay-out” clause. These are viewed skeptically when the work causing the commission is complete; they can be struck down as unreasonable restraint or unlawful deduction from wages already earned.
Terminated for just cause
- If the commission was not yet earned under the plan at dismissal, forfeiture can stand.
- If earned, non-payment is typically disallowed unless the plan validly conditions entitlement on continued employment and the cause is directly related to the commission (e.g., fraud on that sale). Even then, avoid blanket forfeiture.
Product returns / service cancellations / chargebacks
- Permissible if expressly provided, objectively verified, and applied within a defined window (e.g., 30–90 days).
- Chargeback pools are acceptable if transparent and not used to push agents into net negative wages across periods (which can implicate minimum wage rules).
Customer non-payment / bad debt
- “No collection, no commission” is enforceable if agreed.
- If non-payment is due to the employer’s fault (e.g., invoicing error, shipment failure), forfeiture is usually not justified.
Failure to hit quota
- Using quota failure to forfeit already-earned deal-by-deal commissions is risky. Better: structure compensation as a mix of (a) per-sale commission that vests per transaction, and (b) accelerators/bonuses tied to quota that are conditional.
Policy non-compliance (paperwork, CRM logs)
- Forfeiture for minor clerical lapses is often struck as disproportionate. Use curable conditions (with a cure period) rather than outright forfeiture.
Set-offs for losses or damages
- The Labor Code tightly restricts wage deductions. Set-offs for alleged losses typically require legal process, a clear contractual basis, and proof of the employee’s fault or negligence—not mere shrinkage or general loss.

The legal guardrails (what you can and can’t do)

1) No unlawful deductions / kickbacks. You may deduct or withhold from commissions only if:

Required by law (taxes, SSS/PhilHealth/HDMF where applicable).
Authorized in writing by the employee for a lawful purpose, and for the employee’s benefit.
Expressly provided in a fair commission plan (e.g., clearly defined chargebacks) that does not undercut minimum wage or result in negative wage outcomes.

2) Non-diminution of benefits. A long, consistent practice of paying commissions in a certain manner can crystallize into a benefit. Unilateral changes that reduce the take-home (e.g., new forfeiture triggers) risk invalidation unless justified by legitimate business exigencies and implemented with proper notice and prospective effect.

3) No waiver of statutory rights. Even a signed “forfeiture” or “no contest” clause cannot waive statutory wage protections. Ambiguities are construed in favor of labor.

4) Timely pay-outs. Once vested, commissions should be paid on or before the next regular payday or within a reasonable, defined cycle per the plan. Unreasonable delays can amount to unlawful withholding.

5) Minimum wage and OT compliance. For commission-paid employees, ensure total earnings per workday/workweek do not fall below minimum wage; overtime/rest day/night differential rules still apply unless the employee is validly exempt (e.g., field personnel who truly cannot be measured by time—and even then, be cautious).

Designing a lawful commission plan (practical checklist)

Clarity beats creativity. Put the whole lifecycle in writing:

Definitions. What counts as a “sale,” “booked,” “collected,” “return,” “cancellation,” “churn,” “bad debt,” “territory,” “house account,” “inbound lead.”
Vesting trigger. Pick one (close, delivery, collection, lapse of return period) and state it plainly.
Pay-out schedule. E.g., monthly on the 15th following the vesting month; identify the cut-off date.
Chargebacks/adjustments.
- Events: return/cancellation within X days; non-payment after Y days; fraud/misrepresentation.
- Method: line-item reversal on the next cycle; cap on backward-looking clawbacks (e.g., 90 days).
- No negative carry unless expressly agreed and still compliant with wage rules.
Separation scenarios.
- Resignation: pay all vested commissions; specify treatment of unvested commissions (e.g., forfeited if “no collection, no commission”).
- Termination: pay vested commissions; allow forfeiture for deal-related fraud proven by investigation.
- Require final accounting within a fixed timeframe (e.g., 30 days from clearance).
Quota & accelerators. Keep quota-based multipliers separate from transactional commissions to avoid “earned pay” forfeiture.
Dispute process. Define a simple appeal route (HR + Sales Ops), evidence standards, and timelines.
Prospectivity & notice. Changes apply prospectively with reasonable notice (e.g., 30 days), not retroactively to already-earned commissions.
Integration & supremacy. The plan supersedes prior memos; no side deals unless in writing and approved.
Compliance statement. A clause confirming the plan will be administered consistent with the Labor Code and DOLE rules; if any clause is unlawful, it’s severable.

Red-flag clauses (likely to be struck or limited)

“All commissions are forfeited if you resign for any reason.”
“You must be employed on the pay-out date to receive already-earned commissions.”
“We may deduct any company loss (inventory shrinkage, late fees, etc.) from your commissions at our discretion.”
“We may change the plan at any time, including retroactively.”
“Failure to meet quota cancels all commissions for the period.”
“Clawbacks without time limits,” or retroactive chargebacks long after the return/cancellation window.

Documentation & proof (win or lose on the paper trail)

Keep and be ready to present:

The signed commission plan and acknowledgment of receipt.
Version history and notices of changes (dates, effective periods).
Deal files: invoices, POs, contracts, email acceptances, CRM logs, delivery receipts, ORs/SOA, collection confirmations.
Return/cancellation evidence: RMA numbers, credit memos, customer notices, timelines.
Separation records: clearance, final pay computations, proof of pay-out or reasons for non-pay.

Handling disputes: step-by-step

Identify the vesting rule that applied when the sale happened.
Map facts to the rule (close date, delivery, payment, return window).
Check separation status and whether the plan lawfully conditions pay-out on employment at vesting (not merely at arbitrary pay date).
Validate any chargebacks (documented, within window, not employer-caused).
Compute: show gross commissions, lawful deductions/chargebacks, and net payable.
Pay promptly; if genuinely disputed, pay the undisputed portion and document the basis for withholding the rest.
Mediation (DOLE Single-Entry Approach, “SEnA”) before formal complaints can save time and cost.

Special industries & nuances

Insurance/real estate/time-share: Many “agents” are true independent contractors; industry rules typically allow chargebacks and “no collection, no commission.” For employee-agents (e.g., corporate brokers on payroll), revert to the labor-standards analysis above.
FMCG/retail distribution: Returns are common; write tight return windows and treatment for promotional allowances/price protection to prevent open-ended clawbacks.
SaaS/recurring revenue: Tie vesting to first invoice payment and prorate or claw back on early churn within a defined period.

Sample clause language (employer-side, labor-compliant)

Vesting and Pay-Out. A commission “vests” upon full customer payment of the invoiced amount for a booked sale, provided the sale has not been canceled or returned within 30 days of delivery. Vested commissions are payable on the 15th of the month following vesting. Chargebacks. If a vested sale is returned, canceled for non-payment, or refunded within 60 days from delivery for reasons not attributable to the Company’s fault, the corresponding commission will be reversed in the next cycle. Chargebacks will not create a negative net wage; any remaining balance carries forward only with the Employee’s written consent. Separation. Upon separation, the Company will pay all commissions that vested prior to the effective date. Commissions tied to uncollected invoices as of separation do not vest and are not payable. Changes. The Company may revise this Plan prospectively with 30 days’ written notice. No change will retroactively affect commissions already vested.

Quick do’s and don’ts

Put vesting rules in writing, keep them simple, and apply them consistently.
Use reasonable chargeback windows and document every reversal.
Pay vested commissions even if the employee resigns, unless a lawful, clearly stated condition says otherwise.
Separate quota bonuses from transactional commissions.

Don’t

Withhold earned commissions because the agent left after doing the work.
Impose blanket “employed-on-payout-date” forfeitures for already-vested commissions.
Use deductions to pass general business risks to employees.
Change rules mid-cycle to catch past deals.

If you want, share your current commission plan language or a fact pattern (dates of sale, delivery, collection, separation, and any returns), and I’ll map it to the framework above and draft a tailored, litigation-resistant clause set.