California wage and hour law provides an exemption for commissioned salespersons. As with the more common executive, administrative, and professional exemptions, employees don’t qualify for the exemption unless their earnings exceed one and a half times the minimum wage. With the state minimum wage having increased to $9 per hour on July 1, 2014, this means that employees must earn at least $13.50 per hour to qualify for the exemption.
In Peabody v. Time Warner Cable, Inc., a salesperson sued claiming that she was not paid enough to qualify for the exemption. Since commissions were not paid in every biweekly paycheck, the issue turned on how you allocate the commission payments. Time Warner Cable wanted the court to look at the issue on a monthly basis, in which case it would satisfy the minimum compensation requirement. Peabody wanted the court to look at each paycheck separately, in which case her pay would be below the minimum for certain two-week periods when she received no commission.
The federal district court granted summary judgment for Time Warner Cable and Peabody appealed. The Ninth Circuit, finding no controlling authority, asked the California Supreme Court to answer the question. On July 14, 2014, the state court issued its opinion that the focus should be on each individual paycheck. So Peabody’s claims get new life.
The key take-away here is that employers need to review their pay practices to ensure that exempt employees meet the minimum compensation threshold in every pay period. If in any pay period the compensation paid divided by the hours worked is less than 13.5, the employee is not exempt.
On a more macro level, this is similar to what’s happening with suitable seating cases, where the federal courts are asking the California Supreme Court to explain what the law means. As I’ve asked before, how is it fair to punish employers for not complying with laws that no one understands?