California Appeals Court Clarifies Scope of Commissioned Salesperson Exemption


In a case possibly signaling a new direction in California wage and hour law, a California appellate court ruled Friday that a class of car dealers fell within the commissioned salesperson exemption to California overtime laws despite receiving flat fee commissions instead of commissions calculated as a percentage of the price of the cars sold.

In Areso v. Carmax, Inc., 2011 Cal. App. LEXIS 618 (May 20, 2011) (pdf), named plaintiff Leena Areso claimed that she and other sales consultants for CarMax were improperly categorized as exempt employees and denied overtime wages. Areso argued that because the sales consultants received a fixed $150 commission for each car sold, and not an amount proportional to the value of the car sold, they did not receive "commission wages," which are defined by the California Labor Code as "compensation...based proportionately upon the amount or value [of the sale]" (emphasis added). Therefore, they argued, they were not exempt commissioned salespeople.

The Court of Appeals disagreed. In affirming the holding of the lower court, the appellate court ruled that while courts had interpreted the term "value" to be a percent of the price of the product or service, the term "amount" had not been previously construed. Treating the issue as one of first impression, the court held that "[t]he system CarMax used...compensated sales consultants with a uniform payment for each vehicle sold, which constitutes wages based proportionately on the amount of vehicles sold." As such, Areso and the putative class were exempt and not entitled to overtime wages.

Plaintiffs state they will appeal the decision to the California Supreme Court.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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