Daily Blast July 14, 2014

The California Supreme Court issued an opinion in Peabody v. Time Warner Cable, Inc. (July 14, 2014, S204804) __ Cal.4th __, analyzing, at the request of the United States Court of Appeals for the Ninth Circuit, “whether an employer may attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements.” (Slip opn., p. 1.) The Supreme Court held that “[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.” (Id. at p. 7, italics in original.)

Plaintiff worked for Time Warner as a commissioned salesperson. (Slip opn., p. 1.) Plaintiff was paid the equivalent of $9.61 per hour, assuming a 40-hour work week. She received biweekly paychecks, which included hourly wages in every pay period and commission wages approximately every other pay period. Plaintiff sued Time Warner alleging various wage and hour violations. (Ibid.) Time Warner moved for summary judgment contending that plaintiff fell within California’s “commissioned employee” exemption. Although she earned less than one and one-half times the minimum wage, which the exemption requires, Time Warner argued that commissions should be reassigned from the biweekly pay periods in which they were paid to earlier pay periods. (Id. at p. 3.) Time Warner asserted that commissions should be attributed to the monthly pay period for which they were earned. Attributing the commission wages in this manner would satisfy the exemption’s minimum earnings prong. The district court agreed with Time Warner and granted summary judgment. (Ibid.)

The Ninth Circuit asked the California Supreme Court for guidance regarding whether plaintiff’s commission could be allocated over the course of a month, or whether the commission must only be counted toward the pay period in which the commission were paid. (Slip opn., p. 4.) The Supreme Court strictly construed the commission exemption requirement, holding that “an 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 p. 9, italics in original.) The court reasoned that “[making] employers actually pay the required minimum amount of wages in each [biweekly] pay period mitigates the burden imposed by exempting employees from receiving overtime.” (Id. at p. 8.) Further, the court noted that its holding was consistent with the enforcement policies of the DLSE and with several Labor Code provisions, which altogether interpret overtime exemptions in favor of employees. (Ibid.)