Pub. 6 2017-2018 Issue 3

26 San Diego Dealer C alifornia courts continue to have a significant impact on how employees in the auto dealership world are compensated. Approximately four years ago the California Court of Appeal in Gonzalez v. Downtown LA Motors decided that automobile technicians should be paid at least minimum wage for all delay time when they are not engaged in piece work. Notably, the court declined to address the issue of whether time spent by technicians on rest breaks should be compensated separately or whether its ruling should extend to commission or other incentive-based compensation systems. As a result of the Gonzalez decision, many dealerships took a proactive approach and modified their pay plans to provide a base hourly rate that compensates their technicians for all on-the-clock hours, in addition to a bonus to reward employees for production. That same year, the Court of Appeal in Bluford v. Safeway held that employers must separately compensate piece-rate employees for rest breaks. Notably, at that point no other California Court had ever required employers to provide piece-rate employees with separately paid rest breaks and no statute explicitly required it. One of the primary concerns of employers at the time of the Bluford decisionwas whether this decision, which applies only to non-exempt employees on a piece-rate compen- sation system, would be expanded to other areas of compensation, such as commission-paid employees. This question was answered last year when a California appellate court, in Vaquero v. Stoneledge Furniture LLC, ruled that employees paid by commission must be separately compensated for legally required rest periods. In Vaquero, the plaintiffs were commission-based salespersons whose commissions were based on a percentage of sales or a guaranteed draw against those commissions. Their pay plans guaranteed them a minimum pay of $12.01 per hour ($480.40 per week). If the salesperson did not earn $480.40 by the end of the workweek, the employees were paid a draw from future advanced commissions. The purpose of the draw was to ensure these employees satisfied California’s commission-sales exemption. Notably, the commission agreement at issue in this case did not compensate the salespersons for time spent doing anything other than selling, such as taking a rest break or attending a meeting. In its written opinion the appeals court decided that because the draw was recouped from future commissions, it could not constitute a separate payment for rest periods. The court explained that “the plain language of Wage Order [7-2001] requires employers to count rest period time” as “hours worked for which there shall be no deduction from wages.” As a result, the court noted that employers are required to separately compensate employees for rest periods if an employee’s pay plan does not already include a minimum hourly wage for such time. In reaching such a conclusion, the court reasoned that employee commissions would be the same regardless of whether or not rest periods were taken (if they were not paid separately for rest breaks). As expected, the court did not provide any guidance on what method of pay should be used to pay such employees for rest and recovery period time. Although Vaquero did not involve an automobile dealership, this decision could have an impact on employees paid either completely or partially with commissions, such as salespersons. While there are alternative methods for paying salespersons, one popular method among dealerships is to 1) pay commissions and bonuses for all sales activity and 2) pay separately for rest period time and non-sales activity at a rate no lower than the applicable minimumwage. This method of pay will require the accounting of three different types of activity: sales related activity, rest and recovery period time and non-sales related activity. By no means is this the only compliant method of paying commission based employees. Auto dealership employers should consult with qualified labor and employment counsel to determine whether pay practices adequately compensate commission-based employees for all hours worked, including rest and recovery period time. It is recommended that proactivemeasures, such as conducting an internal audit of pay plans, be taken to ensure compliance with California’s rest period andminimumwage requirements andmitigate any possible risks basedon the above-referenced cases. CALIFORNIA APPELLATE COURT EXPANDS LAW ON REST PERIOD PAY FOR COMMISSION-BASED EMPLOYEES By Raúl Zermeño, Fisher & Phillips, LLP Raúl Zermeño is a partner in the firm’s Los Angeles office. He representsmanagement inall aspects of employment law.Hecanbereachedat mailto:rzermeno@fisherphillips. com , rzermeno@fisherphillips.com