Metropolitan News-Enterprise


Thursday, May 12, 2005


Page 1


Ruling on ‘Chargeback’ of Salespersons’ Commissions Left Standing in 5-2 Vote of California Justices


By a MetNews Staff Writer


The California Supreme Court declined yesterday to review a Court of Appeal ruling that allows a newspaper company to require  subscription sellers to pay back their commissions when a customer cancels after less than 28 days, a practice the sellers claimed violates state labor laws.

Only Justices Joyce L. Kennard and Ming Chin voted, at yesterday’s conference in San Francisco, to review the decision of this district’s Div. Eight in Steinhebel v. Los Angeles Times Communications, B172415.

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 precedentóthat 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.

Flier also rejected the argument that the arrangement violates the law against requiring employees to pay secret “kickbacks”. of wages or is otherwise unfair. Employees, she said, “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, while the employer bears the risk that the customer will cancel after the 28th day or simply not pay the bill.

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.

In other action at the conference, the justices:

•Agreed to decide whether a city may sue as a qui tam plaintiff under the False Claims Act. The First District’s Div. Four ruled in State ex rel. Harris v. Pricewaterhousecoopers LLP, A095918, that the City and County of San Francisco could maintain suit on behalf of the state against the accountants whose negligence allegedly allowed the chief financial officer of Old Republic Title Company to cheat the state out of escrow funds that should have escheated.

•Agreed to decide whether an insured may assign its right, established in Brandt v. Superior Court, to recover as damages attorney fees incurred in obtaining the benefits of an insurance policy that were denied as a result of the insurer’s bad faith. This district’s Div. Five answered that question in the affirmative in Essex Insurance Co. v. Five Star Dye House, Inc., B167295.


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