Unconscionable as a Matter of Law in Hanson v. Arizona Financial Credit Union

In a significant decision for employers with commission-based compensation models, the U.S. District Court for the District of Arizona recently held that a clause requiring employees to be employed on the commission payment date to receive their already earned commission is substantively unconscionable as a matter of law. The court’s ruling in Laura R Hanson, et al. v. Arizona Financial Credit Union, 2025 WL 3466954 (D. Ariz. Dec. 3, 2025), has immediate and potentially far-reaching implications for the enforceability of “forfeiture upon resignation” provisions in commission-based compensation agreements.

Plaintiffs, former mortgage loan originators at defendant employer Arizona Financial Credit Union, signed standardized commission agreements conditioning payment on employment status at the pay date. Both employees resigned after closing several loans but before the commissions were scheduled for payment. After the employer invoked the forfeiture clause and withheld the unpaid commissions, the employees brought claims under federal and state law, arguing among other things that the forfeiture clause was substantively unconscionable. 

In ruling on a summary judgment motion filed by defendants, the district court sua sponte granted summary judgment for plaintiffs—who had not moved for summary judgment—upon finding that as a matter of law, it is unconscionable for an employer to deny commissions, even when an employee resigned, if an employee has performed all the tasks necessary to earn the commissions and the only task left to do is for an employer to pay the commissions. Specifically, the district court held the forfeiture on resignation provision unconscionable as applied: The plaintiff employees had completed all work and the loans had closed, so the court reasoned that conditioning payment solely on still being employed at a later pay date was “so one-sided” that it created an impermissible imbalance—the employer kept the benefit of the work while the employees lost earned pay. The court further explained that Arizona law extends protection against “unlimited, one-sided contract provisions” that permit a party to retain a benefit, such as the value of the employee’s work, with “no legitimate justification.”

The district court underscored that where a commission is fully earned by the employee’s completion of the underlying work, a forfeiture mechanism triggered solely by resignation “serves no legitimate business purpose.” Importantly, the court noted that the employer in Hanson retained discretion over when the commission payments were made and even the discretion to pay the plaintiff employees’ commissions despite the forfeiture clause. In doing so, the court acknowledged that a commission plan may, in some circumstances, tie payouts to ongoing employment (such as when the employee’s performance is not complete). Nonetheless, the court held squarely that competitive labor market realities and the lack of business justification render “employment on payment date” forfeiture provisions unenforceable against former employees when the commission is otherwise earned. 

Arizona employers should expect heightened scrutiny of commission plans that condition payment on continued employment through a later pay date and should expect that blanket denials of otherwise earned commissions solely because an employee resigns before payment may not withstand judicial review in Arizona moving forward. Employers with commission-based compensation models should contact experienced employment counsel to assess whether their agreements contain forfeiture clauses implicated by this decision.