## Facts

- Melane Ali worked as an account executive selling software licenses for American Software, Inc. from September 1991 to March 1994 and resigned voluntarily to join a competitor.
- Ali’s compensation included a base salary plus a nonrefundable draw against commissions; draws were paid regardless of sales, negative balances carried forward, and the employer absorbed any shortfall at termination.
- The parties’ commission terms were set out in a written agreement drafted by the employer; Ali read it, had an attorney review it, and negotiated some provisions before signing.
- The contract provided that commissions were earned and payable only upon the employer’s receipt of customer payment and that Ali’s right to commissions on her accounts ended 30 days after employment severance.
- After Ali resigned, customers paid on sales she had generated while employed; the employer refused to pay commissions on payments received more than 30 days after her resignation based on the contract.
- The Labor Commissioner initially denied Ali’s claim for the withheld commissions; Ali then sought de novo review in superior court.
- The trial court found the 30-day cutoff unconscionable and awarded Ali roughly $30,000 in unpaid commissions; the employer appealed.

## Issues

1. Whether the contract term ending an employee’s right to commissions on payments received more than 30 days after voluntary resignation was unenforceable as procedurally and/or substantively unconscionable.
2. Whether unconscionability must be evaluated based on circumstances at contract formation and in light of the overall compensation arrangement.

## Decision

- The Court of Appeal reversed the superior court’s judgment.
- The court held the 30-day post-termination commission cutoff was not unconscionable and was enforceable.
- The court directed entry of judgment for the employer, denying recovery of the disputed post-termination commissions.

## Legal Principles

- A contract term is unconscionable only if it is both procedurally unconscionable (oppression or surprise) and substantively unconscionable (overly harsh or one-sided).
- Unconscionability is assessed at the time of contracting, not based on later outcomes.
- Procedural unconscionability is weakened where a professional employee reviews clear terms, has legal advice, and negotiates aspects of the agreement.
- Substantive unconscionability is evaluated in context, including the entire compensation scheme and allocation of risks, not the challenged clause in isolation.
- A commission agreement may condition commissions on receipt of customer payment and may limit post-termination commissions by a clear deadline when the overall bargain is not so one-sided as to be unconscionable.

## Conclusion

The court enforced a clearly stated commission plan that tied earning to receipt of payment and cut off rights 30 days after resignation, concluding that a well-compensated salesperson who reviewed and negotiated the contract did not show the required combination of procedural and substantive unconscionability.


American Software, Inc. v. Ali, 46 Cal. App. 4th 1386, 54 Cal. Rptr. 2d 477 (Ct. App. 1996)