Commissioned Sales Exemption: Employers May Attribute Commissions Only to Pay Period When Commissions Are Paid for Purposes of Exemption

The California Supreme Court today issued its opinion in Peabody v. Time Warner Cable, Inc., Case No. S204804, __ Cal. 4th __ (July 14, 2014).  At issue was whether an employer may attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements.  The court concluded that an employer may not do so:

[A]n employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings. An employer may not satisfy the prong by reassigning wages from a different pay period.

Id. at *9.  The explained its reasoning as follows:

Whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period. An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall. This interpretation narrowly construes the exemption’s language against the employer with an eye toward protecting employees. (Ramirez v. Yosemite Water Co., supra, 20 Cal.4th at pp. 794-795.) It is also consistent with the purpose of the minimum earnings requirement. Making employers actually pay the required minimum amount of wages in each pay period mitigates the burden imposed by exempting employees from receiving overtime. This purpose would be defeated if an employer could simply pay the minimum wage for all work performed, including excess labor, and then reassign commission wages paid weeks or months later in order to satisfy the exemption‟s minimum earnings prong.

Id. at *7.



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First District Issues Same-sex Harassment Opinion

On Wednesday, the First District held that conduct including numerous gifts, frequent lunch purchases, along with some sexual jokes and displays of pornographic computer images, over a period of several months, was sufficient for a reasonable jury to conclude a supervisor engaged in a pervasive pattern of harassing conduct.  Lewis v. City of Benicia, No. A134078, __ Cal. App. 4th __ (1st Dist. Mar. 26, 2014).


Plaintiff, a heterosexual man, sued his former employer, the City of Benicia, and two former male supervisors, bringing claims for sexual harassment and retaliation.  Id. at *1.  The trial court granted summary judgment in favor of the individual defendants and judgment on the pleadings for the City as to the sexual harassment claims.  The City prevailed at trial on the retaliation claim.  The First District reversed summary judgment as to one individual defendant and reversed the judgment on the pleadings for the City.

The court held that the evidence allowed an inference that Hickman was motivated by sexual interest.  Id. at *7.

Some of Hickman’s alleged acts had sexual connotations. Lewis testified Hickman showed Lewis images on Hickman’s office computer that included a video of a penis in a rat trap and an image of a woman with lopsided breasts.  Hickman told Lewis “risqué” jokes, including: “ ‘How do you make your wife moan then scream? You fuck her in the ass and then you wipe it on your drapes.’ ”

Moreover, Hickman’s alleged course of conduct allows an inference he was pursuing a romantic or sexual relationship with Lewis. Lewis testified Hickman gave him about 30 different items as gifts during the time he worked at the water treatment plant. The gifts included “tuxedo underwear,” with ruffles and a bow tie. Hickman also gave Lewis hats, T-shirts, wine, shot glasses and backpacks. Hickman frequently bought lunch for Lewis. On one occasion during a break, when Lewis picked up Hickman’s cigarette, Hickman said: “[W]hy don’t you just kiss me[?]” Hickman once said Lewis should visit his home.

Id. at 8.  The Court concluded that Hickman alleged course of conduct was one from which a reasonable jury could infer he was pursuing a relationship with Lewis and was acting from genuine sexual interest.  Id. at *9.

The Court further concluded that the alleged conduct was sufficient for a reasonable jury to conclude that Hickman engaged in a pervasive pattern of harassing conduct.  “Based on the course of alleged conduct summarized above, which included numerous gifts and frequent lunch purchases, along with some sexual jokes and displays of pornographic computer images, over a period of several months, a reasonable jury could conclude Hickman engaged in a pervasive pattern of harassing conduct.” Id. at *10.  The Court noted that “whether Hickman’s alleged conduct unreasonably interfered with Lewis’s work performance is a relevant factor in determining whether a hostile work environment existed, but no single factor is required.”  Id. at *11.

Judges & Attorneys

Acting Presiding Justice Robert L. Dondero delivered the opinion, with Justice Kathleen M. Banke and Judge Diana Becton (sitting by assignment) concurring.  The trial judge was Hon. Robert S. Bowers.

Counsel for Plaintiff and Appellants: Bruce A. McIntosh of Bergquist Wood McIntosh Seto LLP; Rhonda D. Shelton-Kraeber of Kraeber Law Office.

Counsel for Defendants and Respondents: Stubbs & Leone: Louis A. Leone and Kathleen L. Darmagnac; Mark E. Davis and Eric J. Bengston of Davis & Young.


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Supreme Court Upholds Class Waiver

First photograph of the U.S. Supreme Court, by...

First photograph of the U.S. Supreme Court, by Mathew Brady, 1869 (courtesy of National Archives). (Photo credit: Wikipedia)

In a five-to-three decision today, the U.S. Supreme Court upheld a class waiver in American Express Co. v. Italian Colors Restaurant, No. 12-133, 570 U.S. __ (June 20, 2013).  The Court considered whether a contractual waiver of class arbitration is enforceable under the Federal Arbitration Act when the plaintiff’s cost of individually arbitrating a federal statutory claim exceeds the potential recovery.  The Court held that it was.

“Respondents argue that requiring them to litigate their claims individually—as they contracted to do—would contravene the policies of the antitrust laws. But the antitrust laws do not guarantee an affordable procedural path to the vindication of every claim.”  Slip Op. at 4.

Nor does congressional approval of Rule 23 establish an entitlement to class proceedings for the vindication of statutory rights. . . . One might respond, perhaps, that federal law secures a nonwaivable opportunity to vindicate federal policies by satisfying the procedural strictures of Rule 23 or invoking some other informal class mechanism in arbitration. But we have already rejected that proposition in AT&T Mobility, 563 U. S., at ___ (slip op., at 9).

Slip Op. at 5.

Justice Scalia, writing for the majority, also rejected the argument that “Enforcing the waiver of class arbitration bars effective vindication, respondents contend, because they have no economic incentive to pursue their antitrust claims individually in arbitration.”  Id.


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Unanimous Supreme Court Upholds Arbitrator’s Interpretation of Contract Allowing for Classwide Arbitration

English: Elena Kagan, Associate Justice of the...

English: Elena Kagan, Associate Justice of the Supreme Court of the United States (Photo credit: Wikipedia)

The U.S. Supreme Court today unanimously affirmed an arbitrator’s interpretation of an arbitration clause to permit class proceedings.  Oxford Health Plans LLC v. Sutter, No. 12-135, 569 U.S. __ (June 10, 2013).  The Court considered whether an arbitrator, who found that the parties’ contract provided for class arbitration, “exceeded [his] powers” under §10(a)(4) of the Federal Arbitration Act, 9 U. S. C. §1 et seq.  Justice Kagan, delivering the opinion of the Court and citing Stolt-Nielsen S. A. v. AnimalFeeds Int’l Corp., 559 U. S. 662, 684 (2010), concluded that the arbitrator’s decision survives the limited judicial review §10(a)(4) allows.

The arbitration clause at issue provided as follows:

No civil action concerning any dispute arising under this Agreement shall be instituted before any court, and all such disputes shall be submitted to final and binding arbitration in New Jersey, pursuant to the rules of the American Arbitration Association with one arbitrator.

Slip Op. at 2.

The Supreme Court in Oxford Health Plans LLC distinguished Stolt-Nielsen:

The contrast with this case is stark. In Stolt-Nielsen, the arbitrators did not construe the parties’ contract, and did not identify any agreement authorizing class proceedings. So in setting aside the arbitrators’ decision, we found not that they had misinterpreted the contract, but that they had abandoned their interpretive role. Here, the arbitrator did construe the contract (focusing, per usual, on its language), and did find an agreement to permit class arbitration. So to overturn his decision, we would have to rely on a finding that he misapprehended the parties’ intent. But §10(a)(4) bars that course: It permits courts to vacate an arbitral decision only when the arbitrator strayed from his delegated task of interpreting a contract, not when he performed that task poorly. Stolt-Nielsen and this case thus fall on opposite sides of the line that §10(a)(4) draws to delimit judicial review of arbitral decisions.

Id. at 7.

The Court decided that Oxford must live with its choice of arbitral forum and the arbitrator’s construction of the contract, “however good, bad, or ugly”:

So long as the arbitrator was “arguably construing” the contract—which this one was—a court may not correct his mistakes under §10(a)(4). Eastern Associated Coal, 531 U. S., at 62 (internal quotation marks omitted). The potential for those mistakes is the price of agreeing to arbitration. As we have held before, we hold again: “It is the arbitrator’s construction [of the contract] which was bargained for; and so far as the arbitrator’s decision concerns construction of the contract, the courts have no business overruling him because their interpretation of the contract is different from his.” Enterprise Wheel, 363 U. S. at 599. The arbitrator’s construction holds, however good, bad, or ugly.

Id. at 8 (emphasis supplied).


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PAGA Claims Not Subject to Arbitration, Says Sixth District


KMODE_EXCEPTION_NOT_HANDLED (Photo credit: avlxyz)

The Sixth District yesterday reversed an order compelling arbitration of an employee’s PAGA claims. Brown v. Superior Court (Morgan Tire & Auto, LLC), No. H037271, __ Cal. App. 4th __ (6th Dist. June 4, 2013).  This is a  preview of a question currently pending before the California Supreme Court in the case Iskanian v. CLS Transportation of Los Angeles.  The court in Brown held that “When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right.”

The question presented in this case is whether the Federal Arbitration Act (9 U.S.C. §§ 1-16) (FAA) permits arbitration agreements to override the statutory right to bring representative claims under the Labor Code Private Attorneys General Act of 2004 (PAGA). (Lab. Code, § 2698 et seq.) We conclude that the FAA does not demand enforcement of such an agreement. A plaintiff suing for PAGA civil penalties is suing as a proxy for the State. A PAGA claim is necessarily a representative action intended to advance a predominately public purpose. When applied to the PAGA, a private agreement purporting to waive the right to take representative action is unenforceable because it wholly precludes the exercise of this unwaivable statutory right. AT&T Mobility LLC v. Concepcion (2011) 131 S.Ct. 1740 (Concepcion) does not require otherwise.

Slip Op. at 1-2.


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Sixth District Holds That Hours-Based Compensation That in Practice Delivered an Unvarying Minimum Amount of Pay Still Not a Salary

A de Beers 3d staff salary token given to empl...

A de Beers 3d staff salary token given to employees and only usable at their stores (Photo credit: Wikipedia)

The Sixth District held on Thursday that an hours-based compensation system which was based on the number of hours worked, with no guaranteed minimum cannot be considered a salary, and therefore cannot serve as the basis for an exempt classification.  Negri v. Koning & Associates, No. H037804, __ Cal. App. 4th __ (6th Dist. May 16, 2013).  Plaintiff is an insurance claims adjuster who was paid $29 per hour with no minimum guarantee.  Slip Op. at 1.  When he worked more than 40 hours in a week, he was still paid at $29 per hour.  He brought a claim for overtime pay, and the trial court issued a defense verdict, concluding that plaintiff was an exempt employee.  Id. at 3.

The Court of Appeal reversed:

We recognize that, in practice, defendant always paid plaintiff the equivalent $29 per hour for 40 hours per week so that he, in effect, received an unvarying minimum amount of pay. We also recognize that, as a general matter, an exempt employee may be paid extra for extra work without losing the exemption. (See Kennedy, supra, 410 F.3d at p. 371.) The problem here is that defendant stipulated to the fact that it “never paid [plaintiff] a guaranteed salary”; if he worked fewer claims “he made less money than if he worked more claims.” That is the same thing as saying that plaintiff was not paid “a predetermined amount” that “was not subject to reduction based upon the quantity of work performed.” He was not paid a salary. For that reason, defendant did not prove that the administrative exemption of Wage Order 4 applies in this case.

Slip Op. at 8-9.


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Meal and Rest Break Class Certified in Light of Brinker

English: A guard at Prague Castle.

English: A guard at Prague Castle. (Photo credit: Wikipedia)

On Friday, the Court of Appeal for the Fourth District reversed a denial of certification of a meal and rest break class action.  Faulkinbury v. Boyd & Associates, Inc., No. G041702, __ Cal. App. 4th. __ (4th Dist. May 10, 2013).  Reconsidering in light of Brinker Restaurant Corp. v. Superior Court, 53 Cal.4th 1004 (2012), the court concluded that the primary issue was the legality of certain company policies, which could be determined on a class-wide basis, even if the application of the policies varied by individual.


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D.C. Circuit Holds That NLRB’s Rule Requiring Employee Rights Poster Unlawful

English: National Labor Relations Board (NLRB)...

English: National Labor Relations Board (NLRB) Member William S. Leiserson (left), Chairman J. Warren Madden, and Member Edwin S. Smith (right) during testimony before the U.S. House of Representatives Special Committee to Investigate the National Labor Relations Board (the “Smith Committee”) on December 22, 1939, in Washington, D.C. (Photo credit: Wikipedia)

Yesterday, the U.S. Court of Appeals for the D.C. Circuit held that the NLRB’s rule requiring employers to post an employee rights poster informing employees of their rights under the NLRA to unionize, among other things, violated employers’ free speech rights and was, therefore, unlawful.  National Association of Manufacturers v. National Labor Relations Board, No. 12-5068, __ F.3d __ (D.C. Cir. May 7, 2013).

We therefore conclude that the Board’s rule violates § 8(c) because it makes an employer’s failure to post the Board’s notice an unfair labor practice, and because it treats such a failure as evidence of anti-union animus in cases involving, for example, unlawfully motivated firings or refusals to hire—in other words, because it treats such a failure as evidence of an unfair labor practice.19 See Brown & Root, Inc. v. NLRB, 333 F.3d 628, 637–39 & n.7 (5th Cir. 2003).

Slip Op. at 23.  You can read the decision here.


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Second District Reverses Deputy Sheriff’s Discharge

English: Los Angeles County Sheriff helicopter...

English: Los Angeles County Sheriff helicopter in flight, Sikorsky SH-3H, N950DF (Photo credit: Wikipedia)

The Second District issued its opinion today in Shirey v. Los Angeles County Civil Service Commission (Los Angeles County Sheriff’s Department), No. B238355, __ Cal. App. 4th __ (May 6, 2013).  Plaintiff was a former deputy sheriff, who was discharged by the Los Angeles County Sheriff’s Department.  Slip Op. at 2.  Plaintiff appealed his discharge to the Civil Service Commission, which upheld the Department’s discharge decision.  Id. Plaintiff appealed, disputing whether the federal Gun Control Act of 1968, as amended in 1996 (18 U.S.C. § 921, et seq.) prohibited plaintiff from possessing a firearm because of his conviction of misdemeanor battery upon a domestic partner.  Slip Op. at 2.

The Second District reversed, finding the trial court incorrectly concluded the United States Supreme Court opinion in United States v. Hayes, 555 U.S. 415 (2009) established plaintiff‘s battery conviction qualifies as a “misdemeanor crime of domestic violence” under the Gun Control Act.  Accordingly the Commission abused its discretion in determining the federal gun possession ban applied to plaintiff.  Slip Op. at 2.

Judges & Attorneys

Judge Karlan of Los Angeles Superior Court, sitting by designation, issued the opinion for the Second District, with Acting Presiding Justice Madeleine Flier concurring.  Associate Justice Elizabeth A. Grimes dissented.

Appeal from a judgment of the Superior Court of Los Angeles County, Judge James C. Chalfant.

Ronald Talmo and Scott D. Hughes for Plaintiff and Appellant.

Hausman & Sosa, Jeffrey M. Hausman, Larry D. Stratton, and Vincent C. McGowan for Real Party in Interest and Respondent.


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Collective Bargaining Agreement’s Waiver of California Labor Code Section 227.3 Right to Vacation Pay Upon Termination Must Be Clear and Unmistakable

Take a Vacation!

Take a Vacation! (Photo credit: Wikipedia)

The Second District held today that the collective-bargaining exception to Labor Code section 227.3 requires that the right to immediate payment of vested vacation time is waived only if the CBA “clearly and unmistakably waives that right”.  Choate v. Celite Corporation, No. B239160, __ Cal. App. 4th __ (2d Dist. May 2, 2013).

The Court of Appeal, however, reversed the trial court’s ruling that defendant willfully refused to pay vacation time.  Labor Code section 203 allows for waiting time penalties of up to 30 days’ wages if an employer willfully fails to pay the employee any outstanding wages upon termination:

203. (a) If an employer willfully fails to pay, without abatement or reduction, in accordance with Sections 201, 201.3, 201.5, 202, and 205.5, any wages of an employee who is discharged or who quits, the wages of the employee shall continue as a penalty from the due date thereof at the same rate until paid or until an action therefor is commenced; but the wages shall not continue for more than 30 days. . . .

(Emphasis supplied.)  But because the present case was the first to define the standard for waiver under section 227.3, the Court found defendant did not act unreasonably.

The trial court’s ruling that Celite acted willfully was based in part on the premise that Celite’s misunderstanding of the law governing waiver—even though shared by the Union—was unreasonable. This premise necessarily assumes that section 227.3 requires any waiver to be clear and unmistakable. Although we agree with the trial court that this is the appropriate standard, this is the first case to define the standard for waiver under section 227.3. Plaintiffs argue that Saustez decided this issue, but it did not. (Saustez, supra, 31 Cal.3d 774.) Celite’s good faith reliance on a different waiver standard was accordingly reasonable, particularly in light of the language in Firestone supporting that standard. (Armenta v. Osmose, Inc. (2005) 135 Cal.App.4th 314, 325-326 [position taken where law is undecided can be reasonable].) That Celite’s position did not prevail does not mean that its position was unreasonable. (8 Cal. Code Regs., § 13520.)

You can read more here.


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