Employment Law

Beware Employers with Commission-Paid Employees: Rest Period Pay Cannot be Deducted from Earned Commissions

By: Susan K. Chelsea

Photo of Susan K. Chelsea
Susan K. Chelsea

In the case of Vaquero v. Stoneledge Furniture, LLC (February 28, 2017), a California appellate court ruled that commission agreements that provide for advances on commissions could violate Labor Code section 226.7 and relevant IWC Wage Orders.

 The case addresses a situation where an employee is paid advances against commissions, and those advances include payments for paid rest periods. In this situation, if the advances are later deducted from earned commissions, then the employee may not have been provided paid rest periods as required by law. The rationale in such instances by the employer is that the employee is not earning commission while s/he is on a rest period, and the employer cannot deduct paid rest period pay from earned commissions. If the rest period time is later credited as earned commissions, the employee has not received paid rest periods.

In this case, Stoneledge Furniture’s commission agreement provided for commissioned sales persons to receive a minimum rate of pay of $12.01 for each hour worked regardless of whether s/he earned commissions. The $12.01 per hour guaranteed rate of pay ensured Stoneledge paid its employees the minimum wage for all hours worked regardless of whether sales persons earned commissions. Stoneledge provided its sales persons with “on-the-clock” rest periods, and therefore claimed that its employees were paid for rest periods when they received the $12.01 per hour. When a sales person earned commissions, Stoneledge’s commission agreement called for previously paid advances to be deducted from the earned commissions, in effect converting the advances to commissions. If all or a significant portion of the advances were converted to commission based compensation, then the amount of pay for rest periods would be converted to compensation for commissions, not for a rest period.

The Appellate Court stated, “Our conclusion does not cast doubt on the legality of commissions-based compensation. Instead, we hold only that such compensation plans must separately account and pay for rest periods to comply with California law.” It is very important that employers with commission-paid employers review their commission agreements to ensure commission-paid employees are receiving paid rest breaks and that commission payment structures do not deduct paid rest period time from commissions earned. Employers may implement a number of procedures to ensure commission-paid employees receive rest period pay. Employers should conduct this review as soon as possible because decisions like this usually result in a flood of copy-cat lawsuits.

If you have any questions about your commission agreement and whether it complies with California law, you may contact Susan K. Chelsea of Klinedinst. 619-239-8131 or schelsea@klinedinstlaw.com.

About Klinedinst

Klinedinst has become the go-to firm for clients across California, across the West, and across the globe. Our litigators, trial attorneys, and transactional lawyers guide clients through every problem, finding solutions at every turn. The firm serves clients from offices in Los Angeles, Sacramento, San Diego, Santa Ana, and Seattle. Whether representing businesses in court, helping negotiate transactions, or handling matters in state, federal, or appellate courts, Klinedinst attorneys help to get the job done.