California is the wage and hour gift that keeps on giving. And if you thought every wage and hour question must have been answered by now....well....the naivete is charming. A few weeks ago, in Vaquero v. Stoneledge Furniture LLC (February 28, 2017), the Court of Appeal (Second Appellate District, Division Seven) tackled two new questions related to rest breaks:
Are employees paid on commission entitled to separate compensation for rest periods mandated by state law? If so, do employers who keep track of hours worked, including rest periods, violate this requirement by paying employees a guaranteed minimum hourly rate as an advance on commissions earned in later pay periods?
Slip op., at 2. And how do you think the Court answered these questions? Everyone should pass this test; it's still California we're talking about. The Court said yes to both questions.
The facts are important to the outcome, since this result would not apply to every commission plan. The defendant had two different plans in operation during the class period. The first was described as follows:
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 “Minimum Pay” of at least $12.01 per hour in commissions in any pay period, Stoneledge paid the 3 associate a “draw” against “future Advanced Commissions.” The commission agreement explained: “The amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.”
Slip op., at 2-3. Later, the plan was changed:
Effective March 30, 2014, Stoneledge implemented a new commission agreement that pays sales associates a base hourly wage of $10 “for all hours worked.” In addition, sales associates can 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.
Slip op., at 4. The Court began its analysis by exhaustively setting forth the rest break requirement, the nature of Wage Orders, and the policies underlying California wage and hour laws, beginning with a citation to Augustus. Next, the Court examined whether Wage Order 7 requires separate compensation for rest breaks:
The plain language of Wage Order No. 7 requires employers to count “rest period time” as “hours worked for which there shall be no deduction from wages.” (Cal. Code Regs. tit. 8, § 11070, subd. 12(A), italics added.) In Bluford v. Safeway Stores, Inc. (2013) 216 Cal.App.4th 864 the court interpreted this 12 language to require employers to “separately compensate[ ]” employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods. (Id. at p. 872.)
Slip op., at 11-12. After a thorough examination, the Court agreed that the approach in Bluford was correct:
We agree with Bluford that Wage Order No. 7 requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time. (See Gonzales, supra, 215 Cal.App.4th at pp. 48-49 [concluding that the identical language in Wage Order No. 4 requires employers to separately pay piecerate workers for nonproductive time].) All of the federal courts that have considered this issue of California law have reached a similar conclusion and have held employers must separately compensate employees paid by the piece for nonproductive work hours.
Slip op., at 14. The Court then concluded that the same result applies to commission-pay employees:
The plain language of Wage Order No. 7 covers employees paid by commission. (See Cal. Code Regs. tit. 8, § 11070, subd. 1 [applying to “all persons employed in the mercantile industry whether paid on a time, piece rate, commission, or other basis”]; id. at § 11070, subd. 2(O) [“wages” includes “amounts for labor performed by employees of every description, whether the amount is fixed or ascertained by the standard of time, task, piece, commission basis, or other method of calculation”].) Where, as here, the language of a wage order is unambiguous, it is dispositive. (Brinker, supra, 53 Cal.4th at p. 1028; see also Gonzales, supra, 215 Cal.App.4th at p. 49 [the wage order “does not allow any variance in its application based on the manner of compensation”].)
Slip op., at 15. The Court explained that commission pay systems and piece rate systems were essentially identical in their treatment of rest breaks:
The commission agreement used by Stoneledge during the class period is analytically indistinguishable from a piece-rate system in that neither allows employees to earn wages during rest periods. Indeed, the purpose of a rest period is to rest, not to work.
Slip op., at 16. After reaching its conclusion, the Court then spent the balance of its discussion disposing of various arguments by the defendant. In one example, the Court rejected that a guaranteed base drawn against future commissions did not pay for rest periods:
For sales associates whose commissions did not exceed the minimum rate in a given week, the company clawed back (by deducting from future paychecks) wages advanced to compensate 23 employees for hours worked, including rest periods. The advances or draws against future commissions were not compensation for rest periods because they were not compensation at all. At best they were interest-free loans. Stoneledge cites no authority for the proposition that a loan for time spent resting is compensation for a rest period. To the contrary, taking back money paid to the employee effectively reduces either rest period compensation or the contractual commission rate, both of which violate California law. (See § 221 [prohibiting employers from collecting or receiving from an employee “any part of wages theretofore paid by said employer”]; § 222 [prohibiting employers from withholding any part of a wage agreed upon]; § 223 [prohibiting employers from “secretly pay[ing] a lower wage while purporting to pay the wage designated by statute or by contract”]; cf. Armenta, supra, 135 Cal.App.4th at p. 323 [averaging wages across pay periods to satisfy minimum wage requirements “effectively reduces [employees’] contractual hourly rate”].)
Slip op., at 22-23. The Court then went through mathematical examples to show that the system in place earlier in the class period did compensate employees differently depending upon whether they took rest breaks or not. If you are paid exclusively on commission, expect to see your compensation system get a tweak in the near future.