In Peabody v. Time Warner Cable, 59 Cal. 4th 662 (2014), the California Supreme Court unanimously held an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s commissioned sales exemption requirements. Under California’s commissioned sales employee exemption, exempt commissioned sales employees must be paid compensation that exceeds 1.5x the minimum wage, with more than half of compensation in commissions.
In Peabody, the employer paid its commissioned sales employees at least minimum hourly wages each pay period, and paid commissions every other pay period. Averaged over the month in which they were earned, the sales employees did receive more than 1.5x the minimum wage between their hourly pay and commissions, with more than half of compensation in commissions.
On appeal, however, the California Supreme Court held that for those employees classified as exempt under the commissioned sales employee exemption, the salary-commission mix must be satisfied in each pay period. An employer cannot satisfy this minimum compensation obligation by allocating commissions paid in earlier or later pay periods to shortfalls in the current pay period, even if the work done to earn the commission was in the previous pay period. The Court also reaffirmed that, under California law, commissioned sales employees must be paid at least twice each month.
Employers with exempt California inside sales employees should now review their commission and pay practices to ensure that exempt commissioned sales employees are receiving at least 1.5 times the minimum wage and more than half their compensation in commissions each pay period, whether in draws or commission payments.