Commissioned Employees Must Be Paid Separately for Rest Breaks
This week, a California Court of Appeal issued its decision in Vaquero v. Stoneledge Furniture LLC, holding that an employer violated California law by failing to pay commissioned employees for rest breaks. California law requires that employees be provided with a paid 10-minute rest break for each four hours, or major fraction thereof, worked. In this case, the employer, which operates retail furniture stores in California, provided rest breaks to its sales associates but the court held that the employer’s commission pay plan did not compensate associates for these rest breaks. The employer’s commission plan provided that associates would be paid a guaranteed minimum hourly rate ($12 per hour) for all hours worked and that this minimum would operate as a draw against commissions. Thus, if an associate’s earned commissions exceeded the minimum guarantee, the associate would be paid the amount actually earned. If the associate did not earn more in commissions than the minimum draw, then the associate would be paid the minimum draw. The plan further provided that the draw would operate as an advance against future commissions. However, the system operated such that an employee was never paid less than at least the minimum guaranteed hourly rate for all hours worked.
Two former sales associates filed a class action against the furniture retailer, alleging that the company failed to compensate employees for rest breaks. The trial court granted summary judgment in favor of the employer, finding that the commission pay plan did compensate employees for rest breaks because rest breaks were included in the employees’ hours worked and the employer paid employees the greater of (1) a minimum hourly rate for all hours worked (including rest break time), or (2) earned commissions. Makes sense to me.
Unfortunately, the employer’s victory was short-lived. The Court of Appeal overturned the trial court’s ruling and held instead that the employer’s pay plan did not properly compensate employees for rest break time. The court cited the rest period provision of the applicable wage order, which states that “authorized rest period time shall be counted as hours worked for which there shall be no deduction from wages.” The court held that because the pay plan’s minimum guarantee operated as a draw against commissions, the minimum guarantee paid by the employer was just an advance that was subject to clawback, or deduction, from future commission wages. Because of this, the court held that the pay system violated California law and did not properly compensate employees for rest break time. The court relied on cases involving employees paid on a piece rate where the courts held that employees paid on a piece rate must be separately compensated for rest break time and other non-piece rate work time. Those cases are of course materially different because the piece rate workers were not paid at all for non-piece rate work time. By contrast, in this case, employees were guaranteed minimum pay of at least $12 per hour for all hours worked, which included rest break time. The fact that the guaranteed minimum operated as draw against commissions (meaning successful employees could earn more than the guaranteed minimum but not less) does not change the fact that employees were provided guaranteed pay for rest break time. As such, I think the Court of Appeal got this one wrong. Unfortunately, the Court of Appeal’s opinion is binding on California trial courts.
If you employ commissioned salespersons (inside sales) in California, you should review your commission pay plan to ensure that covered employees are paid at least the minimum wage for rest break time and that this pay is not subject to deduction or forfeiture based on the plan operating as a draw against commissions. The safest manner of doing this is to provide a guaranteed minimum plus commissions, rather than a pure draw against commissions.