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Commission Wages Are Only Attributable to the Pay Period In Which They Are Paid to Satisfy California Compensation Requirements

7/17/14

By: Sandra K. McIntyre
This week, in Peabody v. Time Warner Cable, the California Supreme court concluded that an employer satisfies the minimum earnings prong of the commissioned employee exemption only in those pay periods in which it actually pays the required minimum earnings and an employer may not attribute commission wages paid in one pay period to other pay periods in order to satisfy California’s compensation requirements.
In Peabody, a commissioned account executive selling advertising on cable television channels received biweekly paychecks in the amount of $769.23 for hourly wages (the equivalent of $9.61 per hour assuming a 40 hour work week) and the last paycheck of each month also included her commission wages earned during the month.[1]  Peabody regularly worked 45 to 48 hours per week and was paid no overtime, as Time Warner claimed that she fell within California’s “commissioned employee” exemption and was not entitled to overtime compensation.  (Cal. Code Regs., tit.8 §11040, subd. 3(D).)  After Peabody stopped working for Time Warner, she brought suit alleging failure to pay minimum wage,  failure to pay overtime, paystub violations, and waiting time penalties .
Time Warner argued in determining whether the commissioned employee exemption applied, Peabody’s commission wages should be attributed not to just the final biweekly pay period in which they were paid, but instead to the corresponding weeks of the monthly period in which they were earned.  In which case, Peabody’s compensation would have satisfied the exemption’s minimum earnings prong and would also necessarily mean Peabody’s compensation was at all times higher than the applicable minimum wage.
The court held that Labor Code section 204(a) requires that all wages, including commissions, must be paid no less frequently than semimonthly and that commissions are owed only when they have been earned, even if it is on a monthly , quarterly, or less frequent basis.  They further held that in determining whether the commissioned employee exemption is applicable and/or whether the minimum earnings prong is satisfied depends on the amount of wages actually paid in a pay period and that an employer may not attribute wages paid in one pay period to a prior pay period to cure a shortfall.