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“I didn't meet my sales goals last week, so I understand why you helped me meet my minimum salary,” sales associate Bill said in an email to the retailer's payroll manager. “You made up the difference in drawing on future commissions, but you included rest breaks as part of my commission. Shouldn't I be paid separately for those breaks.”
“You are paid a guaranteed minimum salary for all the hours you work, including rest periods, because you are on commission” the payroll manager replied. “The agreement you signed makes that quite clear.”
FACTS: A retail furniture company paid sales associates on a commission basis. Other employees were paid $12.01 an hour. Sales associates who did not earn at least $12.01 an hour in commissions during a pay period were paid a draw against future commissions. A commission agreement detailed the requirements: “The amount of the draw will be deducted from future advanced commissions, but an employee will always receive at least $12.01 per hour for every hour worked.”
The agreement did not make allowances for separate compensation for when associates were not performing sales duties, including time spent in meetings, during rest periods and when participating in training programs. Sales associates recorded this time using the employer's electronic timekeeping system.
Sales associates clocked into the system at the start of a shift, clocked out and clocked in for meal periods, and clocked out at the end of shifts, but they did not clock out for rest periods. The employer allowed associates to take rest periods of at least 10 minutes for every four hours and included it as time worked.
Two sales associates, after noticing that the employer did not provide separate pay for rest periods as required by state law, filed a class action lawsuit to recover such wages.
The employer sought a favorable ruling from a trial court, claiming that under the commission agreement, all sales associates were paid a guaranteed minimum salary for all hours worked, including rest periods. Under its compensation plan, the employer said “all time during rest periods was recorded and paid as time worked identically with all other work time.”
The trial court, in ruling in favor of the employer, said that under the system outlined by the commission agreement, “there was no possibility that the employees' rest period time would not be captured in the total amount paid each pay period.”
By tracking all the hours of its sales associates and nonsales employees, including rest periods, the employer was able to ensure that the compensation paid its commission-basis employees “would never fail to include payment for the time employees spent taking their mandatory rest periods,” the court said.
The sales associates appealed.
ISSUE: Were commission-based employees entitled to separate pay for state-required rest breaks?
DECISION: Sales associates paid by commission were entitled to added compensation for state-required rest periods, a California appeals court ruled in reversing a trial court decision in favor of the employer.
The employer claimed that under its compensation plan, “all time during rest periods was recorded and paid as time worked identically with all other work time,” the appeals court said. “Thus, sales associates are paid at least $12 per hour even if they make no sales at all.”
Although any previously paid draw on future commissions was deducted from associates' paychecks, the employer said the repayments were not taken if the result would be a payment of less than the minimum wage of $12.01 an hour for all time worked in a week, the court said.
In California, employers were required to comply with Wage Order No. 7. The plain language of the order “requires employers to count ‘rest period time' as hours worked for which there shall be no deduction from wages,” the court said. The language of the wage order requires that employees be separately compensated for rest periods when employers use an “activity-based compensation system that does not directly compensate for rest periods.”
Because the sales associates were not separately compensated for rest periods as required by California law, the trial court incorrectly ruled in favor of the employer, the appeals court said ( Vaquero v. Stoneledge Furniture LLC, 2017 BL 61373, Cal. App. 2d Dist., No. B269657, 2/28/17 ).
POINTERS: Rest periods of five to 20 minutes generally are paid as work time. While such breaks are considered beneficial to productivity, the rest periods often do not allow employees to use the time effectively for individual pursuits. Such periods must be included as time worked under the Fair Labor Standards Act and may not be offset against other compensable work duties, such as waiting time or on-call time.
Although the FLSA does not require employers to provide rest periods, some state laws do and employers should be aware of the regulations to ensure compliance.
For more information, see the Payroll Administration Guide's “FLSA: Determining Hours Worked” and the guide's individual state chapters on “Required Rest Breaks.”
This analysis illustrates how courts resolve pay-related disputes. The names and dialogue are fictitious.
Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.
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