On February 28, 2017, the California Court of Appeal issued a significant decision in Vaquero v. Stoneledge Furniture LLC (No. B269657). The decision, which was certified for publication, is the first ruling by a California appellate court requiring employers to separately compensate commissioned employees—as opposed to employees paid by piece rate—for rest periods.

The Trial Court Proceedings

The employees in Vaquero worked as sales associates at Stoneledge Furniture LLC, which does business in California as Ashley Furniture HomeStores. From 2009 to 2014, the sales associates were exclusively paid through commissions, though to the extent that an associate failed to earn at least $12.01 per hour in commissions in any pay period, Stoneledge paid the associate a “draw” against future commissions. The commission agreement, however, 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.”

Pursuant to the parties’ stipulation, the trial court certified the plaintiffs’ claims for unpaid rest periods, unpaid wages upon termination, and unfair business practices for a class of California sales associates. The trial court subsequently granted Stoneledge’s motion for summary adjudication, finding that Stoneledge’s commission plan guaranteed that sales associates were paid for all time worked, including their rest periods.

The Court of Appeal Reverses the Trial Court

Disagreeing with the trial court, the California Court of Appeal held that Stoneledge’s commission plan violated California law because it did not separately compensate the sales associates for time they worked but could not earn commissions. In doing so, the Court of Appeal relied on previous cases requiring that piece-rate employees be separately compensated for rest periods and other nonproductive time, a requirement that is now codified at Labor Code Section 226.2. Extending this reasoning, the Vaquero court concluded that the requirements discussed in prior cases “appl[y] equally to commissioned employees, employees paid by piece rate, or any other compensation system that does not separately account for rest breaks and other nonproductive time.”

Although Stoneledge argued that its compensation scheme guaranteed that sales associates would make at least $12 per hour—even during their rest periods—the Court of Appeal found that this was insufficient under California law. According to the Vaquero court, a commission plan “must separately account and pay for rest periods to comply with California law.”

Key Takeaways

The Vaquero decision further complicates California employers’ efforts to compensate employees using incentive-based systems. The Court of Appeal’s holding regarding rest periods may require employers to modify their payroll and timekeeping practices, including the itemized wage statements that are provided to employees.