Calif. appeals court rules employees paid a commission must be paid separate wage for rest periods

By David Hutton | Apr 5, 2017

LOS ANGELES (Legal Newsline) - California’s 2nd District Court of Appeal, Division Seven, has ruled that employers who pay workers a commission must pay a separate minimum wage during rest periods.

As a result of the state appeals court's ruling in Vaquero, et al. v. Stoneledge Furniture LLC in February, employers paying employees commissions may have to evaluate their compensation plans to ensure compliance with California law.

The appeal stems from a lawsuit filed by Ricardo Bermudez Vaquero and Robert Schaefer, who worked as sales associates for Stoneledge Furniture, a retail furniture company doing business in California as Ashley Furniture HomeStores.

After they were terminated, Vaquero and Schaefer filed a class action complaint alleging Stoneledge’s commission pay plan did not comply with state law.

According to court records, both parties agreed to the details of Stoneledge’s compensation system, which paid sales associates pursuant to the Sales Associate Commission Compensation Pay Agreement.

"After a training period during which new employees received $12.01 per hour, Stoneledge paid sales associates on a commission basis. If a sales associate failed to earn a minimum pay of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a draw against future advanced commissions," according to the appeals court's opinion. "The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training and during breaks. Employees clocked into the system at the start of their shifts and clocked out and back in for meal periods, however they did not clock out for rest periods."

The opinion continues, "Stoneledge authorized and permitted sales associates to take rest periods of at least 10 consecutive minutes for every four hours worked or major fraction thereof."

The company implemented a new commission agreement that became effective on March 30, 2014. It pays sales associates a base hourly wage of $10 for all hours worked and sales associates could earn various types of incentive payments based on a percentage of sales.

"Under the new agreement, no portion of a sales associate’s base pay is deducted from or credited against incentive payments," according to the opinion.

Vaquero and Schaefer filed a putative class action alleging causes of action for failure to provide paid rest periods under state labor laws and the applicable wage order and failure to pay all wages owed upon termination, unfair business practices and declaratory relief.

"Stoneledge filed a motion for summary judgment or in the alternative for adjudication, arguing that the rest period claim failed as a matter of law because Stoneledge paid its sales associates a guaranteed minimum for all hours worked, including rest periods," the appeals court's opinion stated.

"The trial court granted Stoneledge’s motion and entered judgment for Stoneledge. The court found 'Stoneledge’s payment system specifically accounted for all hours worked and guaranteed that sales associates would be paid more than the $12 an hour for those hours.'"

The trial court said with this system, "there was no possibility that the employees rest period time would not be captured in the total amount paid each pay period."

The lower court, without examining the merits of the remaining claims, concluded they all failed because they were derivative of the rest period claim.

The appeals court pointed out that its conclusion does not create any doubt regarding the legality of commission-based compensation. Instead, it holds only that such compensation plans must separately account and pay for rest periods to comply with California law.

“Nor will our decision lead to hordes of lazy sales associates,” the court wrote. “The commission agreement in effect during the class period provided that a sales associate who failed to meet minimum sales expectations (which generated commissions well above the guaranteed minimum) was subject to disciplinary measures up to and including termination.”

The court noted that employers have methods in place 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.

However, since Stoneledge did not separately compensate sales associates for rest periods as required by California law, the trial court erred in granting summary adjudication on the plaintiffs’ cause of action for violation of Section 226.7.

The lower court’s ruling that the plaintiffs’ other causes of action failed because the Section 226.7 claim failed was also erroneous.

As a result, the judgment was reversed and the trial court must vacate its order granting Stoneledge’s motion for summary judgment and further denying the company’s motion for summary judgment.

Moreover, the trial court has been directed to rule on the merits of Stoneledge’s motion for summary adjudication on the plaintiffs’ other causes of actions.

The court also ruled the plaintiffs are to recover their costs on appeal.

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