In a case of first impression involving commissioned sales employees, the California Court of Appeal recently held that commissioned employees must be paid hourly at the minimum wage for time spent on paid rest breaks or other non-sales duties. (Vaquero v. Stoneledge Furniture LLC) This case has significant implications for retailers and other businesses who pay their sales employees commissions.
Mr. Vaquero worked as a sales associate for Stoneledge Furniture, a retail furniture store. Sales associates were paid a "draw" equal to $12.01 for each hour worked that was applied against commissions. Under this arrangement, employees were always paid at least $12.01 per hour, and could earn considerably more depending on their sales. Although employees were guaranteed at least $12.01/hour, if the commissions were not high enough to cover the draw, the short fall was offset against future commissions. Employees were paid 100 % by commissions, and were not separately paid hourly for time spent on paid rest breaks or non-sales work, such as attending meetings.
Vaquero filed a class action complaint alleging that his employer violated the California minimum wage and rest break requirements by not paying sales employees separately at least minimum wage for time spent during paid rest breaks even though the guaranteed draw and commissions were much higher than the minimum wage. The plaintiff relied on prior cases involving "piece rate" workers, where courts ruled that piece rate workers must be paid separately for paid rest breaks and other "non-productive time" that was not directly covered by the piece rate formula.
The trial court sided with the employer, and dismissed the lawsuit. The judge ruled that Stoneledge's commission plan, which guaranteed employees at least $12.01/hour for all work hours, including time spent on paid rest breaks, satisfied California's minimum wage and rest break rules.
The Court of Appeal Decision
The Court of Appeal reversed the trial court, and held that the employer's commission plan violated California law. At the outset, the Court held that the rationale behind the cases involving piece rate workers applied equally to commissioned sales employees. The Court reasoned that, unlike federal law which permits an employer to average out an employee's earnings during the work day to satisfy its minimum wage obligations, California law requires that employees are paid at least the minimum wage for all hours worked during the day. Under Stoneledge's compensation plan, employees were paid 100 % by commissions for selling merchandise. Since employees are by definition not selling during rest breaks, the Court held that employees received no compensation for time they spend on rest breaks. The fact that the employee's total earnings for the day far exceeded the minimum wage was not a defense.
The Court also rejected the employer's argument that the guaranteed draw of $12.01/hour compensated employees for time spent during rest breaks. The Court described the draw as an "interest free loan" that is applied to future commissions, not a guaranteed hourly wage.
In addition to concluding the employer failed to pay minimum wage for the time employees spend on rest breaks, the Court concluded that the employer also failed to provide employees with compliant rest breaks because the rules require rest breaks to be paid.
The Court's decision will have a significant impact on employers with commission-only compensation plans. This case makes it clear that employers must separately pay commissioned employees at least the minimum wage for time spent on paid rest breaks. Employees working more than six hours are entitled to two 10-minutes rest breaks. At minimum wage (currently $10.50/hour), this equates to $3.50 per day. Failure to provide compliant rest breaks can also result in a one-hour per day penalty.
Although the focus of the Court's decision was on paid rest breaks, the rationale relied on by the Court would also apply to other non-selling time, such as time spent in meetings or stocking inventory. Non-selling time which is not directly covered by a sales commission must also be paid at the minimum wage.
Failure to comply with these requirements can result in a costly class action for minimum wage and rest break violations, in addition to significant penalties. If you have any questions about this article, or need assistance revising your compensation plan, please contact any member of the Firm.