Daily Blast March 2, 2017

This week, the Second District Court of Appeal, Division Seven (Los Angeles) issued an opinion analyzing whether a “draw against commission” compensation structure violates state law when it fails to separately compensate employees for mandatory rest periods. In Vaquero v. Stoneledge Furniture LLC  (Feb. 28, 2017, B269657) __Cal.App.5th__, the court held that employees paid on commission are entitled to separate compensation for rest periods and that a draw against commission compensation plan that did not include such separate compensation violated state law. (Slip opn., p. 2.)

Stoneledge’s draw against commission compensation structure guaranteed employees a “Minimum Pay” of at least $12.01 per hour for any work period, including rest periods. (Slip opn., p. 2.) If a sales associate earned less than the minimum in commissions, he would be given a “draw” to make up the difference. (Id. at pp. 2-3.) This “draw” amount was then deducted from any commissions that that employee earned above the minimum pay in future pay periods. (Id. at p. 4.) Plaintiffs challenged this compensation structure in a class action suit, arguing that they had not been compensated for rest periods as required by Labor Code section 226.7. (Ibid.) Stoneledge countered that employees were guaranteed $12.01 per hour whether they made sales or not, therefore employees were compensated for all rest periods. (Id. at pp. 3-4.) The trial court agreed with Stoneledge and granted summary judgment in its favor. (Id. at pp. 5-6.)

The Court of Appeal reversed. (Slip opn., p. 26.) The court held that when employees are paid on commission, employers are required to separately compensate them for rest periods. (Id. at p. 15.) The court extrapolated from cases analyzing “piece-rate” compensation plans, reasoning that commission is a form of “activity based” compensation that does not allow employees to earn wages during rest periods. (Id. at pp. 12-16.) As such, in order to achieve a paid rest period, employers must separately compensate these employees. (Id. at p. 14.) Based on this logic, the court held that Stoneledge’s draw against compensation plan failed to compensate employees for rest periods. (Id. at p. 22.) Because commission-based pay did not account for rest periods and any hourly-based “draws” were later deducted by the employer, no compensation could be said to go toward paid rest periods. (Id. at p. 23.)

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