Many California employers are busy this month revising their compensation programs for their commissioned inside sales persons. That’s because a California Appellate Court has just determined that inside sales persons who are paid based purely on a draw from sales commissions are not being fairly compensated for their work. More specifically, the Court decided that commissioned employees must be paid a separate hourly wage for their non-selling work time. The Court’s decision means that California employers must decide whether to pay their commissioned employees a separate wage rate of at least minimum wage specifically for non-selling work activities, or pay them at least minimum wage for all hours worked, plus a commission on sales and any overtime.
The Vaquero Decision
Commission-based compensation was examined in Vaquero v. Stoneledge Furniture LLC. In that case, inside sales persons were paid a commission based on a percentage of sales or a guaranteed draw against future commissions. In practice, the employer tracked employees’ work hours, including rest periods, to ensure employees’ average hourly pay was no less than the guaranteed minimum rate for all hours worked.
The Court first determined that commissioned workers must be separately compensated for rest periods and other non-selling work activities. To reach this conclusion, the Court likened commissioned employees to piece-rate workers who, the courts have decided, must be compensated for rest periods and other non-productive time separately from their productive piece-rate work. The Court also determined that the applicable Wage Order required commissioned employees’ nonproductive work be separately compensation.
Draw Against Commission
Next, the court examined the draw on sales agreement at issue. The Court concluded that neither a commission nor a draw against commission included a paid rest period. If a commission was paid, the commission was the same whether or not rest periods were taken. If a draw was taken, the draw was recouped from future commissions. It made no difference that the employer tracked all work hours, including rest breaks, or that the draw on sales agreement averaged above-minimum hourly wages. Still, the Court did not reject outright all draw against commission agreements. The decision simply requires that such agreements separately account and pay for rest periods and other non-sales activities.
As a practical matter, a commissioned employee spends measurable amounts of time performing pre- and post-shift duties, training, in meetings, and taking mandated rest periods. The Vaquero Court predicted that paying employees for non-selling time would not “lead to hoards of lazy sales associates.” An employer may still incentivize compensation and has other means of optimizing employee performance.