Commission pay plans must separately compensate for rest break time with no offset against other pay

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Yesterday, a California Court of Appeal in Vaquero v. Stoneledge Furniture LLC (Ashley Furniture) found that commission pay plans providing base pay for rest breaks that could be “clawed-back” against future earnings was invalid under California law. Ashley Furniture was sued in a class action by employees claiming that its commission pay plan was noncompliant with California law because it did not properly pay sales employees for rest breaks. The Court of Appeal had two important rulings

  1. that employees who earn only commissions must be paid separately for rest breaks (since the commissions do not cover time spent not-selling, or resting); and
  2. that employers who pay employees both hourly wages and some form of incentive pay, including commissions, violate the rest period pay requirement if they claw back any part of the employees’ base hourly pay as an advance against commissions (draw).

In Vaquero, because the employer (Stoneledge) did not separately compensate sales associates for rest periods, and instead clawed back their hourly earnings against future earned commissions, the employer was not entitled to summary judgment on the issues of failure to pay rest periods and wages owed at termination. The Court of Appeal has remanded to the trail court to consider the remainder of Stoneledge’s motion.

Dealerships should keep in mind that this decision affects not only commissioned sales department employees, but other commission-paid employees, including but not limited to, service advisors and parts counterpersons. We strongly recommend that dealers using commission-only pay plans or those that use a base hourly draw that can be offset against other earnings immediately review their pay plans and seek legal advice.