On February 28, the California Court of Appeals for the Second District applied the same rules that have applied to mechanics since the Downtown L.A. Motors case, to all commissioned employees. It is no longer okay to pay commissions and divide them by total hours worked to make sure minimum wage laws are satisfied. Paying a guaranteed minimum rate as an advance against commissions violates the law unless break time, and any other time not included in the formula for determining commissions, is compensated separately.
The rationale of the Court was as follows:
1. California courts liberally construe wage orders to favor employees.
2. Every employer is required by law to compensate employees for rest time.
3. There can be no deduction from wages for rest periods.
4. Employers cannot comply with minimum wage requirements by averaging – i.e. by dividing total pay by total hours worked, rather each hour worked must be compensated at the agreed pay rate.
5. Rest periods require separate compensation.
6. Piece rate plans don’t compensate for rest time.
7. Commission pay plans don’t compensate for rest time.
8. No part of pay for a specific thing (like piece rate work or commission) can be charged against other hours worked.
9. Providing an advance that can be charged against future work is more like an interest-free loan than compensation for work.
The Court concluded that there is nothing illegal about commission-based pay, but rest periods must be compensated separately from the commission pay, or other pay based on factors that don’t include rest time. The Court specifically said, “[t]hus, employers like [defendant] have methods to ensure that an employee’s productivity does not suffer as a result of complying with California law by paying a minimum wage for rest periods.” The penalty for failure to comply is one hour of pay for each day of violation.
Dealers can expect to see new class action lawsuits springing from this case (unless and until it is overturned) by salespeople and service writers, and any other employee whose pay plan formula does specifically account for rest periods.
These articles are necessarily general in nature and do not substitute for legal advice with respect to any particular case. Readers shouldconsultwith an attorney before taking any action affecting their interests.
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Please Note: This article is necessarily general in nature and is not a substitute for legal advice with respect to any particular case. Readers should consult with an attorney before taking any action affecting their interests.