Commissioned Employees Must Receive Separate Compensation For Rest Periods

By Swerdlow Florence Sanchez Swerdlow & Wimmer

May 12, 2017

Compensating commissioned employees in California got more complicated this year thanks to a decision by the California Court of Appeal holding that employers must separately compensate commissioned employees for their rest periods.

In Vaquero v. Stoneledge Furniture, LLC, 9 Cal. App. 5th 98 (2017), the plaintiffs filed a class action alleging that their employer, Stoneledge, failed to provide sales associates with paid rest periods in violation of California Labor Code Section 226.7. Pursuant to the applicable commission agreement, sales associates were guaranteed a “minimum pay” of $12.01 per hour or $480.40 per week. If sales associates did not earn the minimum pay of at least $480.40 in a workweek, Stoneledge paid them a “draw” against “future advanced commissions.” As such, the plan permitted Stoneledge to recoup the wages advanced to sales associates in later pay periods. Of note, Stoneledge did not pay the employees anything other than commissions, such as an hourly wage.

The Court of Appeal held that Stoneledge failed to compensate the commissioned employees for their rest periods. The court observed that when Stoneledge paid an employee only a commission, that commission did not account for rest periods. When Stoneledge alternatively compensated an employee on an hourly basis (including for rest periods), the company took back that compensation in later pay periods. The court noted that the “advances or draws against future commissions were not compensation for rest periods because they were not compensation at all,” and “[a]t best they were interest-free loans. ” The court therefore concluded that when an employee?s compensation is based on commissions, the employer must separately account and pay for rest periods.

Outside sales employees, who spend more than half their time away from the office engaged in selling activities, are not affected by the Vaquero decision because such employees are not entitled to paid rest periods. However, employers that compensate non-exempt employees on a commission-only basis should ensure that such employees are separately and properly paid for their rest periods. Employers with commission arrangements are encouraged to review their compensation policies. Contact your SFSS&W attorney to ensure your Company’s compliance, or should you have any questions regarding this or other labor and employment law matters.