California Supreme Court Limits Commissioned-Salesperson Overtime Exemption

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On Monday, the California Supreme Court issued an important decision for employers who pay salespersons on commission but don’t pay them overtime because they believe these salespersons qualify for the commissioned-salesperson exemption in the IWC Orders. In its decision, the California Supreme Court held that the requirements for the commissioned-salesperson exemption must be met for each workweek and pay period, and that wages earned in different pay periods could not be allocated back over prior pay periods to ensure that the minimum pay requirements of the commissioned-salesperson exemption are met. The court also made clear that California’s requirements that employees be paid semi-monthly, bi-weekly, or weekly for earned wages applies to commissions, though when those commissions are deemed earned can be defined under the terms of the commission plan. In other words, for employers with semi-monthly pay periods, under Labor Code § 204(a) commissions deemed earned before the 15th of the month have to be paid by the 26th, and commissions deemed earned between the 16th and last day of the month must be paid by the 10th of the following month.

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In Susan J. Peabody v. Time Warner Cable, Inc. (S. 204804, filed July 14, 2014), the California Supreme Court reviewed the payroll history of Susan Peabody, a commissioned salesperson for Time Warner Cable (TWC), to determine whether TWC was exempt from paying her overtime for excess hours worked. Peabody received bi-weekly paychecks, which included her regular wages in every pay period, commission wages approximately every other pay period. She was not paid overtime when she worked beyond 40 hours in a week because TWC claimed that the commissioned-salesperson exemption applied under California’s Wage Orders. In order to be exempt from overtime, a commissioned salesperson must be paid 1.5 times the minimum wage for each hour worked, and more than half the salesperson’s earnings must be based on commissions.

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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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