Contributors

Arevik Sargsyan

Associate

The California Labor Commissioner has been aggressively enforcing wage and hour laws, particularly targeting off-the-clock work in industries with commission-based or flat-rate pay structures. Recent enforcement actions underscore the importance of compliance, as businesses failing to properly compensate employees face significant penalties. For dealerships, ensuring that service advisors, technicians, salespersons, and other commission-paid employees are paid correctly for all hours worked is crucial to avoiding costly violations.

Recent enforcement actions and trends

In December 2024, the California Labor Commissioner cited multiple car washes in Los Angeles and Orange County for $1.3 million in wage theft violations. Similarly, in November 2024, the Marriott Marquis San Diego Marina was fined nearly $10 million for worker recall law violations. These cases highlight the state’s increasing focus on wage and hour compliance, particularly in industries with variable compensation models like automotive dealerships.

While there have not been major publicized enforcement actions against dealerships yet, the industry remains highly vulnerable due to its reliance onproduction-based pay structures. Proactive compliance is key to avoiding similar scrutiny.

Pay plan structures and compliance considerations

Many dealerships have transitioned to pay plans that provide base hourly pay for all clocked hours, supplemented by commission or incentive pay. This approach is generally compliant but requires careful structuring to ensure all working time is recorded accurately.

A riskier alternative is a pay structure compensating commission employees with their commission and other incentive pay plus a separate hourly wage for non-sales activity time. The amount of non-sales activity time paid often based on an estimate determined by the employer. However, this method can be problematic due to:

• Administrative complexity: Tracking and reporting non-sales activity in a compliant manner requires precise recordkeeping.
• Legal uncertainty: The Labor Commissioner or Court may scrutinize how the employer definesf non-sales activity and whether the estimate of non-sales activity time adequately compensates employees.

Rest and recovery pay for commission employees

Dealerships should also ensure compliance with California’s rest and recovery period pay requirements. The law is clear that flat-rate/piece-rate employees (such as technicians and flat-rate detailers) are to be paid for rest and recovery time based on their regular rate of pay. The same clarity does not exist for commission employees. The approach with the least risk is paying commission employees for their rest/recovery time using the same calculation method applied to piece-rate employees. Otherwise, rest/recovery time is to be paid at no less than the applicable minimum wage.

It is crucial for employers to review and update pay plans to ensure commission employees receive adequate base pay for all accurately recorded hours, and to stay ahead of enforcement trends by proactively auditing time records and wage statements. By doing so, dealerships can mitigate legal risks and maintain compliance with California’s evolving wage and hour regulations.