In Muldrow v. Surrex Solutions Corp., court holds that commissions need not be strict percentage of sales

Trials of class actions are uncommon.  Here, though, we have an example of a class action that made it through trial (though admittedly a bench trial, which is more like a long and painful, multi-day summary judgment hearing).  In Muldrow v. Surrex Solutions Corp. (January 24, 2012), the Court of Appeal (Fourth Appellate District, Division One) considered "whether the trial court erred in determining that an employer was not required to pay overtime wages (Lab. Code, § 510) to a class of its current and former employees because they were subject to the commissioned employees exemption (Cal. Code. Regs., tit. 8, § 11070, subd. (3)(D))."

The class of employees was comprised of recruiters that located potential employees for clients of Surrex.  Surrex was paid only when an employee was successfully placed with a client.  The class members were paid a percentage of "adjusted gross profit."  The "adjusted gross profit" was calculated by subtracting various costs from the amount clients paid for a placement.

The Court reached two key conclusions that resulted in an affirmance for the trial court.  First, the Court concluded that "sales-related activities" should be viewed more broadly than the time involved in the sale itself:  "We also reject appellants' contention that time spent 'searching on the computer, searching for candidates on the website, cold calling, interviewing candidates, inputting data, and submitting resumes,' may not be considered sales-related activities."  Slip op., at 14.

Second, the Court concluded that "commissions" do not have to equal a fixed percentage of revenues:

We disagree that either the Keyes Motors court or the Ramirez court intended to preclude an employer from calculating commissions based on anything other than a straight percentage of profits. Most importantly, neither the Keyes Motors court nor the Ramirez court had any occasion to address this issue, because in both cases, the employees' commissions were based on a straight percentage of the price charged to the customer. (Keyes Motors, supra, 197 Cal.App.3d at p. 561 [The "mechanic earns a fixed percentage of the hourly rate charged the customer"]; Ramirez, supra, 20 Cal.4th at p. 804 [employee received a "percentage of the price of the bottles of water and related products sold"].) " ' "It is axiomatic that cases are not authority for propositions not considered." ' " (Silverbrand v. County of Los Angeles (2009) 46 Cal.4th 106, 127, citations omitted.) Thus, "the Keyes Motors definition of 'commission' . . . does not control our case." (Areso, supra, 195 Cal.App.4th at p. 1006.)

Slip op., at 17.  The Court then focused on incentives, distinguishing Keyes Motors and Ramirez:

In this case, in contrast, appellants affected not only the revenue that Surrex received, but also the costs that Surrex would bear. Paige Freeman, a senior consulting services manager, testified that consulting service managers negotiated both the rates that Surrex paid candidate/consultants and the rate at which Surrex billed clients for those services. Appellants therefore had an impact on both the revenue (bill rate) that Surrex received and the costs (pay rate) that Surrex incurred. Thus, while in Keyes Motors and Ramirez, a commission system based on the price of the products or services provided employees with an incentive to increase the number of repairs performed (Keyes Motors) or the number of bottles of water sold (Ramirez), in this case, a commission system based solely on revenue or price would fail to reward employees who helped Surrex achieve greater profits by limiting costs. We see nothing in Ramirez or Keyes Motors that requires such a result, particularly since neither court had occasion to consider a compensation system similar to the one at issue in this case.

Slip op., at 18.  This is all very interesting, but the Court cites no authority in support of its power to define commissions so as to apply the incentives that it views as, in some manner, "better."  Instead, the Court falls back to Black's Law Dictionary for its definition of commission.  Maybe someone has some regulatory history materials handy to check and see whether the Court has the right of what the IWC intended when it created this exemption.