California Employees Paid Commission Take Note…

Los Angeles, CA A recent California Supreme Court decision in a wage and hour lawsuit affects California labor law regarding commission wages.

The class-action lawsuit was initially filed over five years ago in California state court. Plaintiff Susan Peabody, a former account executive at Time Warner Cable Inc., sold advertising on the company’s cable television channels. She claimed the huge cable company violated California overtime law by using employees’ commissions to meet minimum wage requirements.

Time Warner paid Peabody an hourly wage of $9.61 per hour based on a 40-hour workweek. As well, the company paid commission wages under its account executive compensation plan, which brought her wages up to about $75,000 in the 10 months she was employed for the company.

But Peabody claimed she often worked more than 45 hours per week and never received overtime pay. Further, for the pay periods in which she received only her hourly wages, she earned and was paid less than the minimum wage. Time Warner’s justification was that Peabody, as an inside salesperson, was exempt from overtime compensation. This exemption applies if employee’s earnings must exceed one and one-half times (1.5) the minimum wage, and more than half of the employee’s compensation must represent commissions, according to the California labor code.

However, the majority of Peabody’s paychecks comprised only hourly wages and equated to less than 1.5 times the applicable minimum wage during that time period. Peabody argued that she was misclassified as exempt because she collected commissions in only some pay periods and she did not earn one and one-half times the minimum wage as required by federal law and California law for her overtime work.

According to Justia.com, Time Warner argued that commissions should be calculated to the weeks of the monthly pay period in which they were earned and not to the pay period in which they were paid. So paying commission over multiple pay periods would have satisfied the inside sales exemption.

In August of 2012, the case was sent to the California Supreme Court to appeal the 2009 decision, and to answer the question:
To satisfy California’s compensation requirements, whether an employer can average an employee’s commission payments over certain pay periods when it is equitable and reasonable for the employer to do so.

The Supreme Court held that an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements. (The case is Peabody v. Time Warner Cable, Inc., 2012 WL 3538753 (9th Cir. 2012).)