Daily Blast July 10, 2012

On July 10, 2012, the Division Three of the Second Appellate District Court of Appeal (LA) issued an opinion in Deleon v. Verizon Wireless, LLC (July 10, 2012, B233226) ____ Cal.App.4th ____, holding that a compensation plan in which commissions were paid in advance, but not earned until the expiration of a chargeback period, did not violate PAGA since the commission payments were advances and not wages. (Slip opn., p. 2.)

The compensation plan at issue explained that commissions on the sale of cell phone service plans were paid in advance, but were not earned until the expiration of a chargeback period during which the customer could cancel the service. (Slip opn., p. 3.) The chargeback provision did not affect base pay. (Ibid.) Rather, if a customer disconnected service during the chargeback period, the employee’s future commission advances would be reduced by the original amount advanced for the sale. (Ibid.) Plaintiff, a former retail sales representative for Verizon Wireless filed a class action complaint claiming that the chargeback provision violated Labor Code section 233 (secret underpayment of wages) by unlawfully taking chargebacks from the earned commissions of its sales representatives. (Id. at pp. 5-6.)

The Court of Appeal held that the chargeback provision did not violate PAGA and that Verizon Wireless “may legally advance commission payments to its retail sales representatives before completion of all conditions for payment, and charge back any excess advance over commissions earned against future advances should the conditions not be satisfied.” (Slip opn., p. 2.) According to the court, the language in the compensation plan clearly stated that the sale representative’s commissions were not earned at the time of sale of the cell phone service plan and referred to commission payments as “advances.” (Id. at p. 10.) Since commission advances are not wages, there was no violation of section 233, which refers to the underpayment of wages. (Id. at pp. 9-11.) Further, the compensation plans stated that a retail sales representative consented to the compensation contract by either written acknowledgment or by continued performance. (Id. at p. 14.) Additionally, to ensure that employees understood the chargeback provision, Verizon Wireless conducted annual training on how it operated. (Ibid.) As a result, the court concluded that continued employment constituted acceptance of the compensation plans. (Id. at p. 12.)

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