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
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
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
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.