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California’s Commissioned Employee Exemption

In response to an inquiry from the Ninth Circuit, the California Supreme Court has explained how earnings should be allocated when determining whether a commissioned employee’s wages exceed one and a half times the minimum wage. That is one of the elements of California’s commissioned employee exemption from overtime requirements. See Wage Order No. 4, section 3(D).

Susan Peabody earned commissions selling advertising for Time Warner. Three things had to occur for Peabody to earn a commission — (1) procurement of the order; (2) broadcast of the advertising; and (3) collection of the revenue from the client. Every other week Time Warner paid her $769.23 in hourly wages, which was the equivalent of $9.61 per hour, based on a 40-hour workweek, but did not amount to one and a half times the minimum wage. Time Warner paid commissions every other pay period. Time Warner argued that it should be allowed to allocate the commissions after the fact to the pay periods in which they were earned.

The Supreme Court rejected the argument. “An employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.” Peabody v. Time Warner Cable, Inc., Case No. S204804 (July 14, 2014). In rejecting the argument, the Supreme Court declined to follow federal authorities applying the similar exemption available under the Fair Labor Standards Act. (See 29 U.S.C. section 
207(i).) There are too many differences between federal law and California law in the wage and hour area to draw upon federal authorities when interpreting the commissioned employee exemption.