California Overtime Rules: Commission Pay Cannot Be Shifted to Other Pay Periods to Exempt Employees from Overtime

August 4, 2014 by Vishtasp Soroushian

In Peabody v. Time Warner Cable Inc., the California Supreme Court held that an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy the state’s overtime-exemption rules for commissioned employees.  Beeson, Tayer and Bodine (BT&B) strongly supports this employment law ruling which clarifies the protection California’s employment law affords workers compensated via hourly and commission.

 Commission-paid employees are exempt from California’s overtime rules if more than half their compensation is paid in commissions, but only if they make more than 150% of the state minimum wage. Peabody, a Time Warner employee who was paid a combination of hourly wages and commissions, sued her employer claiming that she regularly worked forty-five or more hours per week without receiving overtime compensation.  Time Warner did not dispute this allegation. Rather, it claimed that Peabody fell within the state’s “commissioned employee” exemption.

 The issue in the case is whether Peabody’s compensation exceeded 150% of the minimum wage. The company issued paychecks biweekly, but paid commissions just once a month. Most of Peabody’s biweekly paychecks averaged an hourly wage less than 150% the minimum wage.  But Time Warner argued that her monthly commission payment should be spread out over all paychecks received in the month to determine if her compensation exceeded the 150% of minimum wage threshold.

 Time Warner broke this argument down into two parts.  First, it argued that it had created a lawful monthly pay period for Peabody. The Court rejected this argument, noting State law clearly requires semi-monthly paychecks, each of which must satisfy state law.

Time Warner also argued that Peabody’s compensation should be measured by when she earned  the commissions, not when they were paid. The Court likewise rejected this argument.  Since the purpose of the minimum wage requirement, the Court explained, is to mitigate the burden imposed by exempting employees from receiving overtime, the “[p]urpose 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.”  The Court’s decision here is consistent with the Department of Labor Standards Enforcement’s enforcement policies.

You can get summaries of other recent employment rulings including several that support fair treatment of low wage workers at the BT&B legal blog. See our related article on the recent increase in California’s minimum wage law.

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