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Court of Appeal:
Employees on Straight Commission Entitled to Overtime
Opinion Does Not Mention a Code of Regulations Section Providing to the Contrary As to Those Who Earn At Least Half Their Pay From a Percentage of What They Bring In and Make Twice the Minimum Wage
By a MetNews Staff Writer
California employers must provide overtime pay to employees who receive no set salaries and derive their livelihood entirely from commissions, Div. Three of the Fourth District Court of Appeal has declared.
However, the opinion does not discuss a provision in the California Code of Regulations (“C.C.R.”) which says that higher-paid employees who earn at least half their recompense from commissions are not entitled to such pay.
Justice Thomas M. Goethals authored the opinion, filed Monday. It reverses a judgment by Orange Superior Court Judge Randall J. Sherman in favor of Wedbush Securities, Inc., a Los Angeles financial services and investment firm.
Resolving a class action, Sherman ruled that Wedbush need not pay overtime to its financial advisors because they come under the “administrative exemption” which applies to an employee who earns a monthly “salary” that is at least twice the state minimum wage and who “exercises discretion and independent judgment.”
Goethals relied on federal regulations, which he said California courts customarily turn to in deciding what constitutes “salary.” He determined that employees whose pay is based on commissions are not “salaried,” so the exemption does not apply.
Not Considered
The C.C.R. provision he did not consider is §11040(3)(D), relating to those in “professional, technical, clerical, mechanical, and similar occupations.” It is a codification of a 2001 wage order by the Industrial Welfare Commission—its orders remaining in effect although the Legislature defunded the commission in 2004.
Sec. 11040(3)(D) provides that the requirement of paying overtime—time-and-a-half after eight hours in a day and after 40 hours in a week, and double time after 12 hours and on the seventh day of a workweek—“shall not apply to any employee whose earnings exceed one and one-half (1 ½) times the minimum wage if more than half of that employee’s compensation represents commissions.”
The Court of Appeal for this district recognized in 2006 in Harris v. Investor's Business Daily, Inc., an opinion written by then-Presiding Justice Norman Epstein (now retired), that the requirement of tendering overtime pay “does not apply to any employee” described in §11040(3)(D). The “ ‘commissioned employee’ exemption,” as the California Supreme Court termed it, was applied by it in its 2014 decision in Peabody v. Time Warner Cable, Inc.
Goethals’s Opinion
Goethals did not allude to the commissioned-employee exemption, instead addressing the administrative exemption which Sherman had found applicable.
He said the issue was “whether a compensation plan based solely on commissions, with recoverable advances on future commissions, qualifies as a ‘salary’ for purposes of this exemption,” noting that “[n]o California court has addressed” the question.
Having so stated the issue, he ruled out the relevance of a Wedbush employee being able to draw an advance, saying that an “advance is not a wage.”
Pointing to federal regulations defining a “salary” as referring to pay based on a “predetermined” amount for a given period, he said:
“Wedbush’s financial advisers make less money if they sell fewer products. Their commissions are not a ‘predetermined amount’; they therefore cannot be considered a salary.”
Full Repayment Barred
In dictum, Goethals suggested that if an employer advanced monies to an employee who wound up earning no commissions, and it demanded repayment when the employee was fired, the full amount of the loan could not be recouped. He cited the federal proviso that where advances are made to a nonexempt employee—a category in which he placed the plaintiffs—those advances can only be deducted from a final paycheck after payments are made at the minimum wage level and for earned overtime.
Goethals wrote:
“[W]e note that to the extent Wedbush forces its employees to repay advances at termination, any such policy or practice would be particularly problematic, as an employee could conceivably work full-time, yet earn nothing at all. For example, suppose Wedbush hired an investment advisor who, for one reason or another, sold no products for the first three months of his or her employment, despite working 50 hours per week. Because the investment advisor earned zero commissions, Wedbush advanced the employee the equivalent of twice the monthly minimum wage for those first three months. If the investment advisor’s employment is terminated at the end of that period, and if Wedbush forced repayment of all advances after the employee worked more than full‑time for those months, that employee would receive net zero compensation for the time he or she worked.”
The jurist said that in these circumstances, “an arrangement” under which the full amount of the advance would be due “would violate state minimum wage requirements.”
Goethals’s opinion advances the theory that a terminated employee who undertook to be paid on a straight-commission basis and earned no commissions may, upon discharge, deduct from any amount loaned by the employer as advances whatever sums would have been due under the minimum-wage law had the person been an hourly employee and any accumulated overtime pay.
The case is Semprini v. Wedbush Securities, Inc., 2020 S.O.S. 5388.
Robert W. Thompson and Charles S. Russell of the Irvine firm of Callahan, Thompson, Sherman & Caudill represented the class. William M. Turner, Asha Dhillon, and Catherine L. Dellecker of the Los Angeles firm of Jones Bell Abbott Fleming & Fitzgerald LLP acted for Wedbush.
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