Wednesday, February 8, 2005
C.A. Upholds ‘Chargeback’ on Subscription Sales Commissions
By KENNETH OFGANG, Staff Writer/Appellate Courts
A newspaper company’s practice of requiring subscription sellers to pay back their commissions when a customer cancels after less than 28 days does not violate state labor laws, the Court of Appeal for this district ruled yesterday.
Affirming Los Angeles Superior Court Judge Jon Mayeda’s grant of summary judgment in favor of the company that publishes the Los Angeles Times, Div. Eight ruled that the “chargeback” policy, which the employees had contractually agreed to, did not constitute a withholding of wages or other unlawful conduct.
Mayeda agreed with the Times’ construction of its policy on payment of commissions as imposing a condition precedent—that the customer continue to receive the paper for at least 28 days. The payment that the salesperson receives two weeks after the order is placed is an advance, the judge agreed, that the employee has no right to keep unless and until the condition precedent is satisfied.
Justice Madeleine Flier, writing for the Court of Appeal, agreed with that construction and rejected the plaintiffs’ claim that the arrangement violates Labor Code Sec. 221, which provides that “[i]t shall be unlawful for any employer to collect or receive from an employee any part of wages theretofore paid by said employer to said employee.”
Commissions are “wages,” the justice agreed. But “contractual terms must be met before an employee is entitled to a commission,” she explained.
Emphasizing that each of the plaintiffs acknowledged having read and understood the employment agreement containing the terms on which commissions were earned and paid, Flier wrote:
“The essence of an advance is that at the time of payment the employer cannot determine whether the commission will eventually be earned because a condition to the employee’s right to the commission has yet to occur or its occurrence as yet is otherwise unascertainable. An advance, therefore, by definition is not a wage because all conditions for performance have not been satisfied.”
Flier also rejected the argument that the arrangement violates the law against requiring employees to pay secret “kickbacks” of wages or is otherwise unfair.
“Appellants bear the reasonable risk that the customer may not retain the subscription for at least 28 days, in which case the minimum hourly wage serves as his or her compensation for the time spent,” the jurist reasoned. “Respondent correspondingly bears the risks of the customer not paying the bill at all or canceling on or after the 29th day.”
“If the sale is commissionable, a telesales employee receives his or her full commission. Payment of a commission does not depend in any way on whether the customer pays for the subscription. Even if the customer fails to pay for a commissionable subscription, respondent bears the costs of initiating the subscription, billing, collecting and maintaining the subscription and all the attendant costs of producing and delivering its newspaper”
Not ‘Business Losses’
The justice also distinguished cases holding that employees cannot be held liable for their employers’ “business losses.”
Those cases, Flier explained, prevent an employer from making an employee “an insurer of the employer’s business” by holding employees responsible for cash, merchandise or other business shortages. None of the cases held that an employee could keep what was, in fact, an unearned commission, the justice wrote.
Attorneys on appeal were Mark R. Thierman and MichelineN. Fairbank of the Thierman Law Firm, H.Tim Hoffman and Arthur Lazear of Hoffman & Lazear, and EricM. Epstein for the plaintiffs, and KennethD. Sulzer and ThomasR. Kaufman of Seyfarth Shaw for the Times.
The case is Steinhebel v. Los Angeles Times Communications, B172415.
Copyright 2005, Metropolitan News Company