Insights
Publications

California Supreme Court Splits From Federal Law on Commissioned Employee Exemption Compliance

7/16/2014 Articles

On July 14, 2014, the California Supreme Court clarified the commissioned employee exemption from overtime under California law. In Peabody v. Time Warner Cable, Inc., the court confirmed that calculations necessary to qualify for exemption are to be made for each bi-weekly pay period. Employees must be paid premium wages for any overtime worked in pay periods not qualifying for the exemption.

Susan Peabody had worked for Time Warner Cable, Inc. (Time Warner), as a commissioned salesperson receiving paychecks bi-weekly. Every other week, Time Warner paid Peabody what equated to $9.61 per hour, assuming a 40-hour workweek. About every other pay period, Time Warner also paid her commission wages under its account executive compensation plan. Time Warner treated Peabody as exempt from overtime as a commissioned employee, which requires that employees (1) earn at least 1.5 times minimum wage, and (2) earn half of their compensation in commissions.

After termination, Peabody filed a putative class action in federal court alleging that she had worked overtime and did not earn 1.5 times minimum wage in all pay periods. Time Warner responded that Peabody’s periodic commission payments brought her monthly earnings above that threshold. The United States District Court and Ninth Circuit Court of Appeals agreed with Time Warner, granting summary judgment against Peabody, but the Ninth Circuit asked the California Supreme Court to review the case.

The California Supreme Court reversed the federal court decisions, finding that the commissioned employee exemption depends upon payments made each pay period. It rejected Time Warner’s argument that the 1.5 minimum wage calculation should be made based upon the month in which the compensation was earned. Rather, it held that employers must base the calculation upon each pay period in which compensation was paid. The court also observed that commissioned employees must be paid bi-monthly.

Thus, to meet the commissioned employee exemption, the Peabody court found that each bi-monthly pay period must include compensation equal to no less than 1.5 times minimum wage. Work performed in any pay period not qualifying for the exemption must include appropriate premiums for overtime hours. (The court expressly reserved judgment as to whether the requirement that at least half of earnings be commissions must be satisfied bi-weekly as well.) The court acknowledged that California deviates from federal law, which allows commissioned employees to be paid monthly and qualify for the exemption based upon monthly compensation.

The Peabody decision is critically important to employers with commissioned salespeople. It requires that employers ensure that such employees are assured of receiving 1.5 times minimum wage in every bi-monthly paycheck. The decision also raises the possibility that at least 50% of each bi-monthly paycheck come from commissions. Employers should consider restructuring their commission programs to ensure that commissions and base pay are adequately spread between bi-monthly paychecks to ensure compliance with the Peabody decision.

Firm Highlights

Publication

Guidance on Directive to Defer Payroll Tax Obligations Leaves Unanswered Questions

On August 8, 2020, the President directed the Secretary of the Treasury to authorize the deferment of certain payroll tax withholding, depositing, and payment obligations otherwise incurred on wages and compensation paid between September...

Read More
News

Coronavirus: Can tech allay the dangers of the Bay Area office of the future?

Rebecca Stephens spoke to the San Francisco Chronicle about legal considerations that could potentially hinder a return to physical work as much as technological ones. Link to the article: https://www.sfchronicle.com/business/article/Coronavirus-Can-tech-allay-the-dangers-of-the-15246378.php

Read More
Publication

Reopening Wine Businesses: Employee and Consumer Data Privacy

Farella's Wine Industry Education Series features Nate Garhart and Jaya Bajaj discussing "Reopening Wine Businesses: Employee and Consumer Data Privacy." The shelter-in-place orders prevented in-person tastings from happening, throwing a curve ball to the wine...

Read More
Publication

California Expands Family and Medical Leave Law to Cover Small Employers

California Governor Gavin Newsom recently signed SB 1383, which expands employees’ leave entitlements under California’s Family Rights Act and New Parent Leave Act. Effective January 1, 2021, these leave provisions will apply to employers with...

Read More
Publication

The Election Season Is Upon Us: Guidance for Managing Political Expression in the California Workplace

In a year of extraordinary events, this election has been more divisive and controversial than any other in recent history. Many employers are grappling with how they should manage political expression in the workplace...

Read More
Publication

7 Tips for Creating a COVID-19 Essential Business Travel Policy

As states are relaxing COVID-19-related restrictions, employers should remain cautious about business travel. California’s public health orders still limit travel to an “urgent matter” or that which is “essential to your permitted work.” Given...

Read More
Publication

Employment Law Updates for Nonprofits in the New Normal

Farella's Nonprofit Education Series features Rebecca Stephens and Jaya Bajaj discussing "Employment Law Updates for Nonprofits in the New Normal." Nonprofit organizations are subject to both state and federal employment laws and regulations. The...

Read More
Event

14th Annual ABA Section of Labor and Employment Law Conference

Holly Sutton is a panelist at the 14th Annual ABA Section of Labor and Employment Law Conference live webinar, "Political Speech at Work: What Is Fair and What Is Foul." Details: Some believe that...

Read More
News

52 Farella Braun + Martel Attorneys Listed in The Best Lawyers in America© 2021

Read More
News

Benchmark Litigation 2021 Ranks Farella Among Top Litigation Firms in California

SAN FRANCISCO, October 12, 2020: Farella Braun + Martel continues to be ranked among the top litigation firms in California in the  Benchmark Litigation  2021 guide. Farella was ranked “Highly Recommended” for Dispute Resolution...

Read More