On February 28, 2017, the California Court of Appeal issued its opinion in Vaquero v. Stoneledge Furniture, LLC. The opinion provides guidance to California employers who pay their hourly employees on a commission basis but do not pay separate compensation for time spent during rest periods.

In the case, the employer kept track of hours worked and paid hourly sales associates on a commission basis where, if an employee failed to earn a minimum amount in commissions – comprising of at least $12.01 per hour in commission pay in any pay period – then the employee was paid a “draw” against future advanced commissions. The commission agreement explained: “The amount of the draw will be deducted from future Advanced Commissions, but an employee will always receive at least $12.01 per hour for every hour worked.” In other words, for hourly sales associates whose commissions did not exceed the minimum rate in a given week, the employer clawed back (by deducting from future paychecks) wages advanced to compensate employees for hours worked, including rest periods. The commission agreement did not provide separate compensation for any non-selling time, such as time spent in meetings, on certain types of training, and during rest periods. Although employees clocked out for meal periods, they did not clock out for rest periods.

Two former employees brought suit, alleging, among other things, that the employer did not pay all wages earned during rest periods. The employer filed a motion for summary judgment, arguing that “the rest period claim failed as a matter of law because Stoneledge paid its sales associates a guaranteed minimum for all hours worked, including rest periods.” The trial court granted the employer’s motion, finding that, under the employer’s system, “there was no possibility that the employees’ rest period time would not be captured in the total amount paid each pay period.” The employees appealed.

The California Court of Appeal reversed the trial court’s decision, starting with the premise that the “plain language of Wage Order No. 7 requires employers to count ‘rest period time’ as ‘hours worked for which there shall be no deduction from wages.’” (Italics added by the Court.) The Vaquero Court relied on a 2013 decision in Bluford v. Safeway, Inc., where a sister court had held that this language in Wage Order 7 requires employers to “separately compensate[]” hourly employees for rest periods where the employer uses an “activity based compensation system” that does not directly compensate for rest periods.

Finding that “nothing about commission compensation plans justifies treating commissioned employees differently from other [hourly] employees,” the Vaquero Court agreed with the Bluford Court’s holding that “Wage Order No. 7 requires employers to separately compensate employees for rest periods if an employer’s compensation plan does not already include a minimum hourly wage for such time.” And because the Vaquero employer did not separately compensate its sales associates for rest periods, the Court of Appeal reversed summary judgment.

As had been the case for employers with piece-rate compensation plans, the Vaquero decision makes clear that commission-based compensation plans must separately account for – and pay for rest periods – to comply with California law.