In Vaquero v. Stoneledge Furniture LLC, B269657 (Feb. 28, 2017), a California Court of Appeals has ruled that employers must separately compensate commissioned employees for rest breaks. Here is an overview of the case and considerations for employers in light of this new decision.
Employees Claim Commission Plan Violates Wage Order
Stoneledge Furniture LLC (“Stoneledge”) paid its sales associates on a commission basis. If a sales associate failed to earn guaranteed “minimum pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a “draw” against future advanced commissions to ensure payment of $12.01 per hour in the current pay period. Then, in future pay periods when employees exceeded $12.01 per hour in commissions, the excess was deducted as necessary to reimburse Stoneledge for the advances. Stoneledge permitted employees to take rest breaks but did not provide any separate compensation for the break time.
Former sales associates filed a class action lawsuit alleging that Stoneledge failed to pay for rest periods as required by California law. Stoneledge filed a motion for summary judgment, arguing that the guaranteed minimum pay covered all hours worked, including rest periods. The trial court agreed with Stoneledge and found that the payment system specifically accounted for all hours worked and guaranteed that sales associates would be paid at least $12.01 per hour for those hours. Thus, there was no possibility that rest periods would not be captured in the total amount paid each pay period.
Rest Periods Must Be Separately Compensated From Commissions
The California Court of Appeals disagreed. According to the court, the plain language of Wage Order 7, which applied here, requires employers to count rest periods as “hours worked for which there shall be no deduction from wages.” (Note that the other Wage Orders contain similar language.) The court pointed to two prior California Court of Appeals cases involving separate compensation for rest periods and other nonproductive time when employees cannot earn wages. In one case, the court held that a piece-rate compensation plan was required to separately compensate employees for rest periods where the plan did not already include a minimum hourly wage for such time (this requirement has since been codified at Cal. Labor Code Section 226.2). The other case held that averaging wages for productive time across multiple pay periods to comport with minimum wage laws as to productive and nonproductive time failed to comply with the Wage Orders.
Even though these cases did not expressly apply to commissioned employees, the Stoneledge court concluded that the Wage Order rest period pay requirement applies equally to commissioned employees, employees paid by piece rate, and any other compensation system that does not separately account for rest periods or other nonproductive time. The court noted that the commission agreement used by Stoneledge was “analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods.”
Thus, the court held that commissioned employees must be separately paid for rest periods even if their compensation agreement provides “draws” and “advances” designed to comply with minimum wage laws as to selling time. Because the Stoneledge agreement did not include a component to directly compensate sales associates for rest periods, it violated California law requiring paid rest breaks. The court also noted that the advances and draws against future commissions “were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans.”
Considerations For Employers
Employers that use commission-based compensation for employees who are entitled to rest periods should review their policies and practices to ensure that rest periods are accounted for and separately compensated at a set rate that is at least the minimum wage. The same is true for employers that use any other compensation system that does not separately account for rest breaks and other nonproductive time. The safest option is to provide commissioned employees a guaranteed minimum plus commissions, rather than a draw against commissions.
Finally, this case does not mean that employers are without recourse against “lazy sales associates,” as the court called them, who intentionally engage in excessive unproductive time during the work day to drive up their wages. As the court indicated, employers have options, such as disciplinary procedures, to manage employees who do not meet sales or other performance expectations.
If you should have any questions, please contact your Stratton Agency Human Resources Specialist at 925-556-4404.