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.

By CHARLES H. JUNG

 

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