A California appellate court ruled this week in Vaquero v. Stoneledge Furniture, LLC (No. B269657, filed February 28, 2017) that employees paid on commission are entitled to separate compensation for rest breaks. In a decision that frustrates employers that view the employment relationship through the lens of contract law, the Vaquero Court held that Stoneledge’s commission plan that paid sales associates a percentage of sales or a guaranteed draw in excess of minimum wage against earned commissions failed to properly compensate sales associates for rest breaks and non-productive time.
In Vaquero, two former sales associates filed a class action complaint challenging Stoneledge’s commission plan. Sales associates were paid on a commission basis. If the sales associate failed to earn at least $12.01 per hour in commissions for the week Stoneledge paid the sales associate a “draw” against future commissions equal to $12.01 per hour worked (“guaranteed minimum”). In such circumstances, the commission paid the following week would be reduced by the difference between the commission earned and the draw paid in the prior week. For example, if a sales associate worked 40 hours and earned $300 in commissions for the week, the sales associate would be paid $480.40 ($12.01 x 40) and would have a $180.40 ($480.40 – $300) draw against any commission earned in the following week. The trial court granted Stoneledge’s motion for summary judgment on the grounds that the commission plan paid at or above minimum wage for all hours worked, including rest breaks.
On appeal, the Vaquero Court reversed the trial court and held that the commission plan failed to adequately compensate sales associates for two reasons. First, the commission plan did not compensate for rest breaks taken by sales associates who earned commissions instead of the guaranteed minimum because commissions cannot be earned during rest breaks. Second, for sales associates whose commissions did not exceed the guaranteed minimum, the company clawed back (by deducting from future paychecks) the guaranteed minimum which compensated sales associates for hours worked, including rest breaks which effectively reduced the rest break compensation or the contractual commission rate. Ultimately, the Vaquero Court rejected the commission plan because it credited the compensation earned during hours in which the sales associates could earn a commission towards rest breaks and other non-productive time, which must be separately compensated.
Employers with commissioned employees are safest providing a guaranteed minimum plus commissions, rather than a draw against commissions. It is unclear how broadly this decision will be interpreted. For example, it is unknown whether a commission formula that reduces the earned commissions by the guaranteed minimum would be deemed to result in the non-payment of rest breaks and non-productive time or whether such a formula is permitted when the employer provides supplemental commission compensation.
Time will tell whether this decision will restrict an employer’s ability to factor the amount of a guaranteed minimum into its commission formula. Employers with commission compensation plans should consult with employment counsel to ensure that the plan properly compensates employees for non-productive time and rest breaks and that the plan does not constitute a forfeiture of previously earned wages.