California Supreme Court Limits the Use of California's Commissioned Salesperson Exemption

by Cooley LLP

The California Supreme Court recently released an important decision regarding California's "commissioned salesperson" exemption. To qualify for this exemption to California's overtime laws, an employee must: (1) earn at least one and a half times the minimum wage; and (2) earn more than half of her compensation from commissions. In Peabody v. Time Warner Cable, Inc., the Court clarified that an employer must pay the required minimum earnings each pay period, and may not attribute commissions paid in one biweekly pay period to other pay periods in order to satisfy the earnings requirements of the exemption.

Susan Peabody was a salesperson for Time Warner. She regularly worked more than 40 hours per week, but was not paid any overtime wages. She only received commission payments every other pay period. After Peabody stopped working for Time Warner, she sued, alleging various wage and hour violations. Peabody claimed that she did not qualify for the commissioned salesperson exemption, as she had been classified by Time Warner, because her paychecks for non-commission pay periods were well below one and a half times the California minimum wage. Time Warner, on the other hand, argued that while Peabody's paychecks were issued on a biweekly basis, it was using "monthly pay periods" when paying commissions. As a result, commission payments could be attributed to whichever biweekly pay period they were "earned" in, even though they were only paid every other pay period. Attributing Peabody's commission wages in this way would satisfy the exemption's minimum earnings prong.

In its decision, the Court gave short shrift to Time Warner's compensation scheme, concluding that "[a]n employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall." In other words, an employee must qualify for the commissioned employee exemption in every workweek of a pay period to fall within the scope of the exemption. The Court reasoned that such a requirement mitigates the burden imposed by exempting employees from receiving overtime.

Importantly, the Court also reiterated that commissions are included within the Labor Code's definition of "wages" under Labor Code section 204, which requires employers to pay wages on a timely, semimonthly basis. Thus, employers must pay out any "earned" commissions within the same semimonthly parameters that they use to pay out any other wages. That said, the Court recognized that many commission plans calculate amounts owed on a monthly (or less frequent) basis and noted that commissions only need to be paid out once they were "earned" by an employee. The Court noted that California law on this subject is different from federal law, which allows employers to defer paying commissions "so long as the employee is paid the minimum wage in each pay period."

Employers will need to carefully consider employee compensation decisions if they wish to use the commissioned employee exemption post-Peabody. It also makes sense to re-examine any existing sales commission plans; employers must be prompt about paying out commissions and may not be able to defer the payment of commissions to later pay periods if those commissions have already been earned under the terms of an existing plan.

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.

© Cooley LLP | Attorney Advertising

Written by:

Cooley LLP

Cooley LLP on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
Privacy Policy (Updated: October 8, 2015):

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.


JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at:

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.