Employer Cannot Attribute Commission Wages Paid in One Pay Period to Cure Shortfalls in Other Pay Periods

On July 14, 2014, in Peabody v. Time Warner Cable, Inc. (Cal., July 14, 2014) —-P.3d—-, 2014 WL 3397770, the California Supreme Court held that an employer cannot attribute commission wages paid in one pay period to cure shortfalls in other pay periods.  In that case, Time Warner paid its account executive on a biweekly basis, which included hourly wages in every pay period and commission wages approximately every other pay period.  The employee was paid $769.23 in hourly wages, the equivalent of $9.61 per hour.  About every other pay period, Time Warner paid her commission wages.

The employee consistently worked overtime but Time Warner argued that she fell within California’s “commissioned employee” exemption.  That exemption requires, among other things, that an employee’s “earnings exceed one and one-half (1 ½) times the minimum wage,” i.e., $12 per hour. It was undisputed that the majority of the employee’s paychecks were for less than that amount. Time Warner argued that the prong was satisfied because commission wages paid in one biweekly pay period can be attributed to other pay periods.  The Supreme Court disagreed.

The Court held that the minimum compensation component of the exemption must be satisfied in each workweek and paid in each pay period.  Thus, 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.

Laconic Lookout: To ensure compliance with the “commissioned employee” exemption, California employers must make sure that their employees are paid at least 1 ½ times the minimum in each pay period regardless of when the commission is earned and paid.

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