Commission-based employees must be paid for non-sales work

Steve Johnson and Scott Scollitt worked as mortgage loan originators for U.S. Bank National Association.  These employees sued their employer for unpaid wages and for not being provided meal and rest periods. They alleged that the bank improperly averaged their commissions which resulted in them being paid less than the minimum wage for the time they spent doing non-sales work. They further claimed that the employer failed to pay overtime wages, and failed to provide meal and work periods. When the employees were fired or quit, the bank failed to pay all wages owed to them at the time of discharge.

Whether or not employees are paid hourly, piece-rate, or on commission, they must be paid no less than the minimum wage for all hours worked. If an employee spends time doing other work-related activities not covered by the plan (such as pick-up or clean-up activities, or attending compulsory work meetings), the time spent doing these is considered hours worked, and must be paid at least the minimum wage (or an agreed hourly rate, if any).

Under California law, employees who are paid by commission are entitled to at least minimum wages for each hour worked, and overtime pay when necessary. Basing the employee’s pay merely on an estimate of the number of hours an employee should be working in sales-related activities (without regard to the employee’s actual hours worked) is not acceptable.

A commission plan may provide payment of a fixed “advance,” or “draw” on a periodic basis. Commission advances typically will require certain conditions that must be satisfied before commissions are earned. Thus, even though a commission advance may have already been paid, an employee will not have yet earned the commission if certain conditions are not yet satisfied. The employee’s sale must be commissionable for the employee to earn the commission. If advances are paid for anticipated sales that do not materialize, the commission may be “recovered” or “clawed back” as a deduction from future pay. However, if the system of payment results in employees not being paid for non-productive (or non-selling) time, that pay practice may be illegal.

Also, under California law, employees who are paid on a commission plan are still entitled to rights that are provided to hourly employees, such as the right to be provided off-duty meal and rest breaks. An employer shall not require commissioned employees to work during breaks. If an employer fails to provide a meal or rest breaks, the employee is entitled to one additional hour of pay at the employee’s regular rate of compensation for each workday that the meal or rest break (or both) is not provided.

Are employees paid on commission entitled to separate pay for rest breaks if the commission plan has a “claw back” provision? Courts said yes, particularly where the plan does not address how employees are to be paid for rest breaks (which is time spent not earning commissions). Where the commission computation did not account for rest breaks, the employee should be separately paid for rest breaks.

Lastly, commissioned employees are still employees, and under California law, an employer must reimburse an employee for all necessary expenditures incurred in direct consequence of the discharge of the employee’s duties. These include costs spent complying with the employer’s instructions. Examples of reimbursable expenses include travel expenses; costs of uniforms or special clothing required by the employer; and costs of supplies, tools, materials, or equipment.

The case against U.S. Bank was resolved via a settlement, with the bank agreeing to pay the aggrieved employees $6.5 million in damages. The employer also agreed to change its policies so that employees are paid for all hours worked and are provided meal and rest breaks.

The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com. [For more than 25 years, C. Joe Sayas, Jr., Esq. successfully recovered wages and other monetary damages for thousands of employees and consumers. He was named Top Labor & Employment Attorney in California by the Daily Journal, consistently selected as Super Lawyer by the Los Angeles Magazine, and is a past Presidential Awardee for Outstanding Filipino Overseas.]